Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Royal Assent

Mr. Speaker: I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Acts:

1. Coroners Act 1988.
2. Immigration Act 1988.
3. Public Utility Transfers and Water Charges Act 1988.
4. Farmland and Rural Development Act 1988.

PRIVATE BUSINESS

BRIGHTON AND PRESTON CEMETERY BILL

SOUTH YORKSHIRE LIGHT RAIL TRANSIT BILL

Read the Third time, and passed.

Oral Answers to Questions — SOCIAL SERVICES

Nurses' Pay

Mr. Teddy Taylor: To ask the Secretary of State for Social Services what account the Government's review of nurses' pay takes of the problem of high living costs in areas like Southend-on-Sea; and if he will make a statement.

The Secretary of State for Social Services (Mr. John Moore): The independent review body examined the question of selective pay supplements and said that for staff outside the London area it would be sensible to wait until the new grading structure has had time to take effect. The review body suggested it would then be possible to decide more accurately whether, and if so what, further geographical pay incentives may be required.

Mr. Taylor: Is the Secretary of State aware that, while the nursing pay review was widely welcomed in the profession and owed a great deal to his initiative, nurses and other public servants working on national wage scales feel discriminated against because of the uniquely high cost of living in some areas, of which Southend is an example? As it is a long time since we had a visit from a Health Minister to our excellent hospitals in Southend, will my right hon. Friend, or one of his colleagues, be willing to visit one of our hospitals and speak to the nurses about their problems?

Mr. Moore: Having had some considerable involvement with the hospitals in my hon. Friend's area, I shall be delighted to accept his courteous invitation. Having said that, I stress that the recommendations of the review body and the problem of geographical pay beyond the Thames region will obviously not go away.

Mr. Michael McNair-Wilson: Since the fringe zone weighting in Sir James Cleminson's report goes out as far as east Berkshire, should it not reach as far as Reading? suggest that the cost of living in Reading is every bit as high as anywhere in the outer region of London, if not as high as in London itself. Does not the problem of recruiting nurses there owe much to the fact that the cost of living in Reading is as high as it is in London?

Mr. Moore: I stressed that I was repeating the comments of the review body. I am conscious of the particular problems of recruitment in the M4 corridor. The Government are conscious of some of the geographical pay difficulties and will not ignore the point that my hon. Friend has made.

NHS Ancillary Staff (Pay)

Mr. David Marshall: To ask the Secretary of State for Social Services if he will make a statement on progress towards a pay award for the National Health Service ancillary staff and how it is to be funded.

Mr. Win Griffiths: To ask the Secretary of State for Social Services if he will make a statement on progress towards a pay award for the National Health Service ancillary staff and how it is to be funded.

The Minister for Health (Mr. Tony Newton): Pay of NHS ancillary staff is a matter for negotiation in the ancillary staffs Whitley council. I understand that negotiations stand adjourned until 18 May. Health authorities are expected to meet general pay increases from their cash allocations and cost improvement programmes.

Mr. Marshall: The Minister's reply is wholly unsatisfactory. When will the Government stop treating ancillary workers as the poor relations of the Health Service and provide health boards with enough extra funds to give ancillary workers a fairer deal, without cutting any other aspect of the Health Service?

Mr. Newton: I wonder whether the hon. Gentleman is aware that under the present Government ancillary workers have had an increase in real terms of just under 4 per cent., which compares with a reduction in real terms of 10 per cent. under the Labour Administration.

Mr. Griffiths: Will the Minister turn his eye away from history and look at the present? Does he realise that all health authorities see the people they employ as part of a total team committed to caring for the patient? Will he now commit the Government to a similar award for ancillary workers and ensure that the health authorities have the money to fund it properly?

Mr. Newton: Having spent eight years as a member of an Administration who have made this country's economy the strongest for a generation and made possible real terms increases in pay of many workers in the Health Service and elsewhere, to which I have referred, I have no intention of turning away from that history.

Mr. Fearn: Is the Minister aware that scientists in the NHS, as well as ancillary workers, have no pay review body and that their pay has fallen behind by 48 per cent.? Does the Minister have any intention of establishing a pay review body for them?

Mr. Newton: The answer to the latter part of the question is no, but if the hon. Gentleman is referring to medical laboratory scientific officers, who form an important group, he will know that there has been active examination of restructuring proposals, which I hope will help to solve some of the problems there.

Mr. Robin Cook: The Minister cannot pass the buck for the negotiations. Is he aware that the Whitley council adjourned so that the management side could consult him? What answer did he give? Does he recognise that, in the seven years since Clegg, the pay of ancillary staff has fallen behind the retail prices index, leaving the poorest even poorer paid? Will he concede that these are often the same people who are experiencing whopping cuts in their housing benefit? How long is he prepared to be Britain's largest employer of Britain's lowest paid workers?

Mr. Newton: I have already said that this group has had a real terms pay increase under this Administration, compared with a real terms pay reduction under the Labour Administration. We shall negotiate in good faith on the basis of a further offer, which no doubt the management side will make when the negotiations resume.

West Midlands Regional Health Authority

Mr. Anthony Coombs: To ask the Secretary of State for Social Services when he last met the chairman of the West Midlands regional health authority; and what subjects were discussed.

The Parliamentary Under-Secretary of State for Health and Social Security (Mrs. Edwina Currie): My right hon. Friend last met the chairman of the West Midlands regional health authority on 22 March. I have had the pleasure of meeting him three times since January. A number of issues were discussed, including expenditure on health services in the west midlands, which now stands at

a whopping £1·2 billion, an increase of some 34 per cent. in real terms since 1978–79.

Mr. Coombs: Will my hon. Friend confirm that the increase of 30 per cent. since 1979 has led to a large increase in medical staff and to an increase of 24 per cent. in in-patients being treated within the region? Will she also confirm that the districts within the regional health authority have set up their own version of the Government's resource management initiative to allow resources to be allocated not only on the basis of perceived need but to those districts which, like my own, use them most efficiently?

Mrs. Currie: The West Midlands regional health authority is doing a cracking good job. Last year it admitted 700,000 in-patients—13,500 per week. It dealt with nearly 4 million out-patient visits last year—12,400 each working day. Many people have reason to be satisfied with the NHS in the west midlands.

Mr. Rooker: Will the Under-Secretry of State check her diary and confirm that she was not present at the meeting on 22 March between the Secretary of State and the chairman of the regional health authority? I was, along with some of my hon. Friends, and we were given to understand that we would be informed of the cuts that were due to take place in this financial year before they took place in known areas, at the instigation of the chairman and with the agreement of the Secretary of State. We are still waiting for that information.

Mrs. Currie: I am sure that my right hon. Friend enjoyed the meeting that he had with the hon. Gentleman and his hon. Friends. However, I think that the hon. Gentleman misheard me. I said that expenditure on the west midlands health services now stands at £1·2billion, which is a record in both cash and real terms. The authority is employing a record number of staff, it has a record hospital building programme, and it is looking after a record number of patients.

Dame Jill Knight: At meetings with the chairman, did my hon. Friend discuss waiting lists in the west midlands, which are worrying many people? Has she any news to give to the House on that matter?

Mrs. Currie: Yes. Again, the west midlands has been making considerable progress. The latest figures that we have, for the summer quarter ending September 1987, show that waiting lists had dropped by 6 per cent. in six months, that 42,000 people had been treated from the waiting list, and that the median wait was only six weeks, and falling.

Social Security

Mr. Dalyell: To ask the Secretary of State for Social Services what resources his Department is devoting to monitoring the effects of the recent social security changes.

Mr. Moore: The effects of the social security reforms are being monitored using a wide range of data derived from my Department's management, expenditure and statistical returns and from the family expenditure and general household survey. The collection and analysis of this data involve a substantial staff effort, but it is not possible to provide a reliable estimate of the cost.

Mr. Dalyell: Why are those on junior rates, who are mostly under 25 and students, excluded from the transitional arrangements?

Mr. Moore: I am not absolutely certain how that relates to the orginal question, but I shall endeavour to answer it.


The transitional arrangements refer specifically to certain groups—the disabled, widows, pensioners and families with children. Throughout the social security reform an attempt was rightly made by the Government, after long consultation and debate, to target help away from those who are younger and independent.

Mr. Sims: Following the changes that my right hon. Friend recently announced, how soon local authorities will be given details so that they can implement the changes to housing benefit? Similarly, when will DHSS offices know about the changes involving hardship cases?

Mr. Moore: I hope that my hon. Friend will be able to confirm in reply to later questions that by the end of this week we should be able to notify specific local authorities. The new unit is being set up this week, and free phone facilities should be in operation within 24 hours.

Mr. Orme: Is the Secretary of State aware that the way in which industrial injury benefit and invalidity benefit are taken into account for housing benefit is having a dramatic effect on tens of thousands of homes? I spent a most depressing week in my constituency talking to constituents who have lost £10, £15, £20 and £25 a week. That is outrageous. What will the Secretary of State do about it?

Mr. Moore: If the right hon. Gentleman checks the very helpful letter that my hon. Friend the Minister for Social Services and the Disabled wrote to him last Thursday, he will see that transitional protection covers the particular problem to which he is referring, as it relates to those who are above income support level but for whom there were local authority discretionary schemes which theoretically under the law stopped at the beginning of last month. They are covered by the transitional arrangements.

Mr. McCrindle: I welcomed the announcement two weeks ago that in future beneficiaries in certain categories should not be more than £2·50 a week worse off, but am I correct in thinking that that does not take into account the 20 per cent. contribution to rates? If so, as a large number of the complaints that I continue to receive are about the effect of having to pay that contribution, may we have an assurance that that will continue to be monitored? If the conclusion reached is that the principle is good, may it be that we are going too far too quickly?

Mr. Moore: As my hon. Friend the Minister of State said on another occasion, we shall continue to monitor this area. However, I would not want to give my hon. Friend false encouragement, because the 20 per cent. contribution to local authority rates was not expected to be covered by the transitional protection.

Mr. Kennedy: One of the things that the Department is monitoring over the transitional period is the number of single payment claims which were outstanding at 11 April, about which I have a later question. Will the Secretary of State give us the average figure, for regional offices within Scotland, of outstanding single payments?

Mr. Moore: I would not wish to abuse the Order Paper and leap to a further question. However, we have had only the first month of initial monitoring of offices in Scotland, and that would be an incorrect statistical basis on which to make a judgment. For example, I know that the hon. Member for Linlithgow (Mr. Dalyell) would not like us to make judgments on the basis of the Bathgate office, where, not untypically, only half the loans provision was used in the first month—a fraction of the grant. However, we are

watching the details with great care, and we shall keep the
House well informed.

Mr. Hayes: I congratulate my right hon. Friend on his swift and sensitive adjustments, but will he make it absolutely clear that if any further injustices appear he will also be swift and sensitive in rectifying them?

Mr. Moore: I thank my hon. Friend for recognising that the Government moved very fast in making these adjustments. This Government, who were involved in a rapid change affecting 8·5 million people and an expenditure of £14-plus billion, and who made modifications to the tune of £100 million, deserve my hon. Friend's congratulations.

Mrs. Beckett: Does the Secretary of State accept that the Department ought to heed the results of the monitoring within the Department and by outside reputable bodies? If it had heeded the advance warnings that it received over the last three years about the results of the changes, the transitional protection, for which the Secretary of State has just claimed credit would have been unnecessary, and a great deal of suffering and anxiety would have been avoided. Will he pay special attention to the monitoring of the social fund, from which most applicants, including the young, will be excluded because of its totally inadequate budget?

Mr. Moore: We shall monitor carefully all aspects of the changes. We have already made a clear public commitment to commission independent research into the social fund. It has already been announced in a private notice question that that research will start in the spring of 1989. I confirm that announcement.

Independent Living Fund

Dr. Moonie: To ask the Secretary of State for Social Services when he expects the first payments to he made from the Independent Living Fund; and what arrangements for interim payments he has made.

Mr. Patchett: To ask the Secretary of State for Social Services when he expects the first payments to be made from the Independent Living Fund and what arrangements for interim payments he has made.

The Minister for Social Security and the Disabled (Mr. Nicholas Scott): Payments from the Independent Living Fund will be made in the near future when it is legally established. Meanwhile, a number of applications have been received and decisions on interim payments are being made by officials, with professional advice. Final decisions will be taken by the trustees.

Dr. Moonie: Is the Minister aware of the anger and frustration of the voluntary organisations involved in the care of severely disabled people in the community? Will he give a categorical assurance now that the scheme will he fully in place within a very short time?

Mr. Scott: The fact that the scheme is not fully in place should not inhibit anybody from making an application. We have sent out 70 forms in response to inquiries, and 25 completed forms have been returned. Visits by social workers are beginning to take place. The fund is working. I urge anybody who feels that he might be entitled to benefit from the fund to apply as soon as possible to the Department.

Mr. Patchett: Is the Minister able to say why the sum of £5 million was established for the fund? Was it based on the likely number of applicants? Does the Minister have the power to increase its budget should that be necessary?

Mr. Scott: Bearing in mind that there is transitional protection for claimants who were receiving benefits before the change to the new system, I am confident that the £5 million is sufficient to cope with the demand this year. We have said that we will look at the budget amount for subsequent years in the light of experience gained during the first 12 months.

Mr. Wigley: The fund is a useful interim step towards helping disabled people to live in the community, but the real step that is now urgently needed is to implement in full the Disabled Persons (Services, Consultation and Representation) Act 1986. Given the highlighting of very difficult and heartrending cases on the Esther Rantzen programme in the last three weeks, will the Minister now give an undertaking that section 7 of the Act will be implemented as rapidly as possible to minimise the difficulties that face people who are trying to live in the community after having left long-stay institutions?

Mr. Scott: Discussions are taking place on the further implementation of the Act. We need the results of the survey by the Office of Population Censuses and Surveys, and in due course we shall have to look at the pattern of benefits in an overall and coherent fashion.

Mr. Alfred Morris: As the extreme hardship that this fund was supposed to prevent dates from 11 April, is it not outrageous that on 10 May the fund has still not been legally constituted? Has the Minister seen the charge made by the major voluntary organisations for the disabled, that he has seriously underestimated the number of hardship cases? How can he possibly defend a regime that leaves hundreds of thousands of disabled people worse off by reference to a scheme that will help fewer than 300 and that still has not been formally set up?

Mr. Scott: I think that the right hon. Gentleman ought to have listened to the reply that I gave earlier about the arrangements that had been made to ensure that nobody suffers or endures delay because trustees have not yet been appointed or the trust deed agreed. Anybody who feels that he is entitled to benefit should apply now. I am confident that the £5 million will be adequate to cope with the demand on the fund in the first 12 months.

EC (Pensions)

Mrs. Fyfe: To ask the Secretary of State for Social Services what information he has as to the levels of state pensions in each of the member states of the European Community, taking account of the cost of living in each country; and if he will place in the Library a copy of a league table based on those figures.

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. Michael Portillo): Only three countries in the European Community—the United Kingdom, Denmark and Ireland—have flat-rate pensions payable to most pensioners. Earnings-related pensions in the other countries are linked to the individual's own earnings, and there is no fixed pension level. Spending on programmes for the elderly in the United Kingdom as a share of gross domestic product is the third highest in Europe.

Mrs. Fyfe: Does the Minister agree that it is a deplorable state of affairs when old-age pensioners visit our advice surgeries driven to tears because they do not know how they will cope with the harsh change in their circumstances that has arisen in the past three weeks? Does he agree that this country has a moral obligation to ensure

some dignity and comfort in old age and not to squander the nation's money, turning the rich into the super-rich?

Mr. Portillo: That is why I am happy to tell the hon. Lady that we are spending 9·6 per cent. of our gross domestic product on services and benefits to the elderly and that that is the third highest figure in Europe. I hope that she will be well content with that. She will be aware that only a small minority of pensioners were losers under the reforms, and that measures were taken on 27 April to provide further transitional protection to many of those groups.

Mr. Sayeed: Does my hon. Friend agree that to produce that league table would be misleading because it would ignore the fact that there are benefits available to the elderly in this country that are not available anywhere else in the world?

Mr. Portillo: That is indeed the case. Last year the Leader of the Opposition and Lady Castle provided a league table that was discussed with the European Community's statistical office. That office stated that the comparison between the United Kingdom and other countries appeared to have been carelessly done because it was not accompanied by any comment on the fundamental differences between various social protection systems. That same letter of 27 April 1987 went on to say that the only statement that the office could back was that made by my predecessor, my hon. and learned Friend the member for Mid-Bedfordshire (Sir N. Lyell), that the third highest proportion of GDP spent on the elderly was spent in this country.

Mr. Madden: What European example are the British Government following by cutting the pension of a 74-year-old constituent of mine by the amount of industrial death benefit that she receives in respect of her husband who died 22 years ago? Does the Minister agree that it is disgraceful that 30,000 widows should be handicapped because they are in receipt of industrial death benefit and that the Government have not honoured a commitment that they made some time ago that existing recipients would not be harmed by the changes?

Mr. Portillo: We are almost alone among European countries in paying additions to men's benefits in respect of their wives. That is a major feature of our benefit system.
In addition, our supplementary benefit rates for pensioner couples are about 20 per cent. higher than, for example, those in Germany, after taking account of the differences in the cost of living. If the hon. Gentleman wishes to go into European comparisons, I am happy to do battle with him.

Nurses

Mr. Thurnham: To ask the Secretary of State for Social Services what representations he has received from nurses following the pay rise proposals.

Mr. Newton: My right hon. Friend met representatives of the nursing professions at the time of the announcement by my right hon. Friend the Prime Minister of the Government's decision on the pay review body's recommendations. They expressed their satisfaction that the Government had decided to implement the recommendations in full and fully fund the award. The result is that nurses now enjoy the highest ever levels of real terms pay.

Mr. Thurnham: Will my right hon. Friend remind nurses how much better off they are under this Government than they were under the Labour Government? Will he also encourage former nurses to return to the profession, in view of the declining number of school leavers?

Mr. Newton: The real terms increase in nurses' pay since 1979 will now be about 44 per cent., which, as with ancillary staff, compares with a real terms reduction under the Labour Administration.
We urge health authorities to encourage former nurses to return to the profession and very much hope that the pay increase will assist that process.

Rev. Martin Smyth: I appreciate the increase in salaries and welcome the fact that it is fully funded, but does the Minister recognise that there has perhaps been an impact on nurses in the hospice movement that has not been considered? Has he received any representations from such sources regarding such an impact? For example, in the Northern Ireland hospice, the outlay each year of £700,000 should be increased by £100,000 if it is to be fair.

Mr. Newton: Yes, I have had at least one direct representation about this matter. I shall consider the point, but I should observe that many hospices are in part funded by health authorities, and it would be appropriate for them to consider the matter in the light of the additional money being made available to them.

Mr. Nicholas Winterton: Is my right hon. Friend aware that our right hon. Friend the Secretary of State recently made a most successful visit to Macclesfield, where his words of wisdom about what the Government have done for the Health Service went down very well with a discerning audience? Will my right hon. Friend confirm that the Government's commitment is to meeting the nurses' pay review body award in full, and not just the average increase? There is considerable anxiety among administrators and some nurses that it is just the average increase, rather than the full increase, which the Government have rightly agreed to implement, and which is so welcome.

Mr. Newton: We shall shortly make allocations to regional health authorities in respect of the additional funds. They will have to consider how to allocate to the districts. The general proposition, and the basis on which the figures have been calculated, is a full funding of the award. As for the earlier part of my hon. Friend's question, I am sure that any audience of which he is a part is discerning.

Ms. Harman: Will the Minister give us a clear commitment that he will fund the pay award for nurses in voluntary hospices to the same extent as for those in the NHS? Is he aware that charitable hospices believe that they cannot meet the pay increase by rattling collection boxes and that if pay awards are not fully funded services for the terminally ill will be cut and some hospices, especially in northern England, which do not have a wealthy community to back them, will close?

Mr. Newton: I think that, in effect, I have already answered that question. The hon. Lady puts it in an absurd form. If the Government funded voluntary hospices as they fund health authorities, those hospices would cease to be voluntary, with all that goes with it. Many health authorities, through contractual arrangements or in other ways, assist hospices, and I would expect them to take account of the pay award.

Mr. Watts: Will my right hon. Friend keep an open mind about the possible need to extend regional premiums outside the London area? There is great fear in the East Berkshire authority that, in view of our proximity to London, our existing problems with recruiting nurses will be exacerbated by the premium that is payable just over border.

Mr. Newton: My hon. Friend will know that some thoughts on this subject were put to the review body, but it felt that further consideration was needed on the basis of experience. However, we shall bear that point in mind.

Mr. Wareing: To ask the Secretary of State for Social Services if he will make a statement on recruitment levels at schools of nursing.

Mrs. Currie: I understand that in the year 1986–87, 22,825 people entered basic nurse training. At 31 March 1987 there were more than 61,000 learners undertaking basic nurse training in England.

Mr. Wareing: Why do the Government not treat nurse education with the seriousness that it deserves? Why has there been an 18 per cent. cut in expenditure on nurse education by the Government? Is it not a disgrace and a shame that hospitals such as St. Thomas's in London will have no further student recruits this July, which means that they will have to wait until October before they can get more nurses? That will lead to more ward closures or, at the very least, to more bed closures. Is that not a disgrace? Is it not time that the Government pulled their finger out and monitored vacancies to ensure that they are filled?

Mrs. Currie: The hon. Gentleman might just remember that part of the answer to the first part of his question was given by my right hon. Friend the Minister for Health in the debate on 19 January, when he said that one of the reasons why basic nurse training costs a little less now is that fewer people drop out, so there is less wastage. As for the hon. Gentleman's point about St. Thomas's, he is obviously not aware of what is happening in Liverpool, which covers his constituency. The Sefton school of nursing tells me that it is fully booked for nurse training and is having no problems with recruitment. The Liverpool school of nursing says that it expects recruitment to be the same this year as last year and that it is experimenting with changing the educational test for admission so that it does not have to rely wholly on people with 0-levels. There are many good people without educational qualifications who would make excellent nurses, especially in Liverpool.

Mrs. Ann Winterton: Is my hon. Friend aware of how vital it is to open nursing recruitment to groups other than the young? I refer specifically to people who have brought up their families and who then wish to train for and pursue a second career in their early middle years. I am sure my hon. Friend will appreciate the contribution that they could make to the nursing profession.

Mrs. Currie: My hon. Friend is absolutely right. I was making a similar point to the hon. Member for Liverpool, West Derby (Mr. Wareing), as such a policy is already being pursued in Liverpool. I am sure that my hon. Friend will join me in welcoming the increasing number of male recruits.

Mr. Galbraith: Does the Minister agree that there is a problem with drop out, particularly in the first year of training? Does she agree also that it may be partly


overcome if those recruited into nursing could be confident that the Government would fund the regrading implemented in the nurses' pay award? Will the Minister give a guarantee that any increased expenditure incurred by health boards due to regrading will be fully funded by the Government?

Mrs. Currie: We expect this year's total pay bill for nursing to run to more than £5,000 million for the whole of the United Kingdom, and we have a record number of nurses. Our job is to ensure that we recruit, train and retain all the staff that are needed.

National Health Service

Mr. Nicholas Bennett: To ask the Secretary of State for Social Services if he will make a statement on the progress of the review of the funding and organisation of the National Health Service.

Mr. Moore: We are continuing to examine a range of options for improving services to patients and will bring forward proposals as soon as we can.

Mr. Bennett: Will my right hon. Friend bear in mind that we on the Government Benches are looking for greater choice for patients in their selection of doctor, treatments and hospitals? We want also to see greater efficiency and value for money in the Health Service, through internal and external competition.

Mr. Moore: I take note not only of what my hon. Friend said, but also of the intent behind it. He is concerned not only about increasing competition, but about improving benefits to patients through greater choice and additional resources in health care.

Mrs. Mahon: Will the Minister take on board the point that his policy, and that of the Government, of increasing competition has led to chaos in my health authority? Laundry is now having to be transported 90 miles to Grimsby and hospitals are regularly without clean linen.

Mr. Moore: Competition has brought £100 million of additional money into health care in England for the benefit of patients. I should have thought that even the unreconstructed Labour Benches could begin to welcome that improvement.

Mrs. Virginia Bottomley: While welcoming my right hon. Friend's review, may I ask whether he is aware that many of us hope that he will pursue an evolutionary rather than a revolutionary approach to the problems? Many of us believe that we continue to have one of the best health services in the world and that the challenges we face are still largely of management rather than of funding.

Mr. Moore: As always, I welcome my hon. Friend's contribution. We are looking at all ideas. Our prime and only concern is the better health of our nation.

Nurses

Dr. Marek: To ask the Secretary of State for Social Services how he intends to monitor the implementation of the new clinical grading structure for nurses.

Mr. Newton: By means of guidance from my Department, visits by officials, and returns from all health authorities showing how many staff have been allocated to each of the new grades from each old grade.

Dr. Marek: Will the Minister give a clear and unequivocal assurance that all the money necessary will be found by the Government for health authorities to enable them to staff all established posts, as opposed to all posts currently filled?

Mr. Newton: Health authorities' establishment requirements are for them to determine within the total of their overall resources. We have committed ourselves to providing, and have provided, the additional money required to fund in full the recent pay award.

Mr. Favell: Can my right hon. Friend say when a response will be made to Project 2000? Will he reject proposals to train nurses away from wards? Does he agree that the best learning experience is practical experience?

Mr. Newton: I hope that we will respond to Project 2000 quite shortly. We certainly intend any proposal to ensure that the training of nurses continues to have a strong practical element.

NHS Ancillary Staff (Pay)

Mr. Doran: To ask the Secretary of State for Social Services if he will make a statement on progress towards a pay award for the National Health Service ancillary staff and how it is to be funded.

Mr. Ingram: To ask the Secretary of State for Social Services if he will make a statement on progress towards a pay award for the National Health Service ancillary staff and how it is to be funded.

Mr. Newton: I refer the hon. Members to the reply I gave to the hon. Members for Glasgow, Shettleston (Mr. Marshall) and for Bridgend (Mr. Griffiths) earlier today.

Mr. Doran: The Minister will be well aware that many of the problems in the Health Service were caused by the Government's failure last year to fund increases. He has spoken about the matter this afternoon, but will he give a commitment that in the event of a shortfall in any health board—and we have heard rumours that there will be such shortfalls—his Department will make up the difference to ensure that there is no knock-on effect on other health services?

Mr. Newton: I do not see how any question of shortfall could arise at a time when negotiations are proceeding on the subject of the hon. Gentleman's question, namely, ancillary staff. We expect that health authorities and boards in Scotland will be able to meet the results of any negotiation out of the resources available to them.

Mr. Ingram: Is the Minister aware that many ancillary workers earn poverty wages below the European guideline on decency levels which are set at £32·5 per hour? Does he agree that that is miserly pay for people who do such a valuable job in the Health Service?

Mr. Newton: I readily recognise that many ancillary workers make an important contribution to the provision of the service as a whole. I have also said—one or two hon. embers may not have heard me say it, so I shall have to say it again—that the wages of that group are higher in real terms than when the Government came to office, and that when the Labour Government left office they were lower in real terms than when they took office.

Hospital Waiting Lists

Mr. Gow: To ask the Secretary of State for Social Services what action he is taking to reduce waiting lists at the Eastbourne district general hospital.

Mrs. Currie: In addition to the improvements that we are seeking within existing resources, last year we made an extra £110,000 available to Eastbourne from the waiting list fund. This was used for nearly 100 additional hip operations. This year we have increased the allocation to £155,000, and it will be used for gynaecology and ear, nose and throat patients.

Mr. Gow: Is my hon. Friend aware that for some specialties the waiting lists in Eastbourne are becoming longer, as is the time involved? Does she agree that for a woman to have to wait two years for a hysterectomy is absolutely unacceptable?

Mrs. Currie: My hon. Friend raised these issues in his Adjournment debate on 29 April. I assure him that there has been a good deal of activity in Eastbourne since then. He was then particularly concerned about gynaecology. He has my firm promise that we will get the waiting lists down, and I will write to him in more detail by the end of the week.

AIDS

Mr. Butler: To ask the Secretary of State for Social Services whether he has any plans to promote HIV screening on a voluntary basis.

Mr. Newton: I refer my hon. Friend to my reply to him of 12 April, at column 101.

Mr. Butler: My hon. Friend will be aware that the French Government promote voluntary testing and have a large number of regional centres to which they encourage the population to go for such testing. Why have we followed a different course in this country?

Mr. Newton: My hon. Friend will be well aware that we have given extensive publicity to the availability of testing and made it very clear in our information material that people who are worried about being infected should seek expert advice. That was made clear, for example, in the leaflet distributed to all households. Of course, if further steps are required we shall be prepared to consider them. y hon. Friend will know that we shall shortly be examining the report from Dr. Joe Smith of the Public Health Laboratory Service on various related issues.

Sir Nicholas Bonsor: My hon. Friend will be well aware of the concern in large parts of the medical profession that we are not adequately aware of the trend of HIV in this country. I hope that he will seriously consider taking on not only voluntary but compulsory testing where necessary, perhaps in the armed forces or the prison population, so that monitoring of the progress of the virus can be accurate and adequate.

Mr. Newton: I note my hon. Friend's suggestions, but he will know that we have not so far felt it right to go down the path of compulsory testing. There is no doubt that it would raise some substantial issues. Again I refer in part to the report from Dr. Joe Smith, which we shall be studying.

NHS Expenditure (North-West)

Mr. Tony Lloyd: To ask the Secretary of State for Social Services if he will make a statement on Health Service spending in north-west regional and district health authorities.

Mr. Newton: Gross revenue expenditure has increased from £382·6 million in 1978–79 to £922·8million in 1986–87. That represents an increase of 24 per cent. in real terms.
During the same period gross expenditure of £277·3 million has also been incurred on completing 32 new capital schemes within the region. With the benefit of that funding record levels of patients have been treated.

Mr. Lloyd: Nevertheless, does the Minister not recognise that there is a history of the health of people in my region being worse than that of people in the more

prosperous south-east and that that spending has done nothing to narrow the gap? When will the Government do something serious about the huge health disparities that exist in Britain?

Mr. Newton: I know of the hon. Gentleman's interest in this matter well enough to know that he is aware that the gap has narrowed. The north-west region is a so-called RAWP-gaining region and it has done substantially better than many others for precisely that reason.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Sackville: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having further meetings later today, including one with the President of Guyana.

Mr. Sackville: Does the Prime Minister agree that critics of the community charge have conspicuously failed to come up with anything better?

The Prime Minister: Yes. Any alternatives would be infinitely worse, as we all know when we have been through a rating revolution. A rating revaluation based on capital values would be even worse, and a local tax would be abhorrent to most people.

Mr. Kinnock: Was not any change that the Prime Minister was to make supposed to be related to the ability to pay?

The Prime Minister: Yes, it is. Nine million people will pay less than the flat rate.

Mr. Kinnock: If that is the case, why is the right hon. Lady having such difficulty persuading her party in this House and the other place?

The Prime Minister: Perhaps the right hon. Gentleman did not notice that the Bill went through this House.

Mr. Amery: Has my right hon. Friend had her attention drawn to the practice attributed to President Reagan of consulting an astrologer before taking decisions? Has she considered appointing a resident astrologer at No. 10 Downing street? I should make it plain that I am not applying for the post.

The Prime Minister: No. I come under Libra, which is a very balanced sign.

Mr. Robertson: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Robertson: Is the Prime Minister aware of the widespread dismay that there will be about the news that the United States Senate has decided to delay ratification of the INF treaty? As the Prime Minister is such a strong public supporter of the treaty, and as she knows of the damaging consequences that there would be for East-West relations if the treaty were to fail, will she use all her influence in Washington to ensure a speedy ratification of it?

The Prime Minister: I share the hon. Gentleman's view that it is important that that treaty be ratified, and I have made that view known. I understand that the Senate postponement relates to United States-Soviet Union


differences over interpretation of inspection rights. Among those are rights under the treaty to inspect missiles and missile stages leaving those missile assembly plants subject to permanent monitoring. It is not for us to interpret the treaty, but I believe that there is sufficient time for that to be properly resolved before the President visits Moscow, and I hope that the treaty will be ratified by that time.

Mr. Oppenheim: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Oppenheim: Is my right hon. Friend aware that Derbyshire county council now levies the highest rate in England and Wales, but that none the less, local people in Amber Valley have rejected scare stories about the community charge and elected a Conservative council for the first time ever.

The Prime Minister: Yes. I congratulate my hon. Friend's constituents on having the wisdom to do that. It was important that they should do so, because councils elected now will be those which impose the first community charge. We have to remember that councils decide the community charge.

Rev. Martin Smyth: Has the Prime Minister had time to consider the reply that the Parliamentary Under-Secretary of State for Employment gave me last Tuesday? If so, will she confirm that it is Government policy to employ people on the grounds of merit alone? How does that square with the recent list that was put in the Library in answer to my question about employment in the Civil Service?

The Prime Minister: Of course it is our policy to employ on merit alone. There has never been any other policy.

Mr. Gill: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Gill: In view of the increasing difficulty faced by young people on low incomes in obtaining homes in rural areas, will my right hon. Friend agree to review the allocation of Housing Corporation funds, only 3 per cent. of which go to rural areas, even though 20 per cent. of the population live in those areas?

The Prime Minister: I know that the proportion is very small, but the guidelines covering Housing Corporation allocations to rural areas have recently been revised. Funding will be targeted on smaller and more isolated agricultural settlements, with a view to doubling the present level of housing association provision in those areas. It is not a great deal, but it is a start. As my hon. Friend is very well aware, one also has to get planning permission for increased housing in rural areas.

Mr. Dunnachie: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer the hon. Gentleman to the reply that 1 gave some moments ago.

Mr. Dunnachie: As a result of the recent housing benefit cuts, many senior citizens in my constituency of Glasgow, Pollok and elsewhere have been asked to pay double their previous rent and rates from resources that are already overstretched. Will the right hon. Lady consider ways of ending the fear and hardship that her Government's policy has imposed upon the elderly?

The Prime Minister: If the hon. Gentleman's constituents are in local authority housing, their rent and rates are a matter for the local authority. [Interruption.]

Mr. Speaker: Order. Sir Nicholas Bonsor.

Sir Nicholas Bonsor: Does my right hon. Friend agree—[Interruption.]

Mr. Speaker: Order. This takes up time.

Sir Nicholas Bonsor: Does my right hon. Friend agree that one of the greatest threats to world peace at the moment is the amount of chemical weapons stored by the Soviet Union? Does she further agree that the use of chemical weapons in the middle east has greatly exacerbated that threat? Is she prepared to take a lead among the leaders of the free world to find a solution to this appalling threat to our future?

The Prime Minister: I agree with my hon. Friend that the use of chemical weapons in the Iran-Iraq war has been very worrying indeed, as none had been used since world war 1. It concerns us all. I also agree with my hon. Friend that it is a matter of great anxiety to the West that the Soviet Union has a very large stockpile of chemical weapons and has modernised them, whereas we got rid of ours long ago. We shall use all our diplomatic skills to try to get an agreement on chemical weapons, preferably to abolish them altogether, but, as my hon. Friend is aware, verification is the most important factor. I believe that we may get further in negotiations on this matter.

Miss Lestor: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer the hon. Lady to the reply that I gave some moments ago.

Miss Lestor: I refer the Prime Minister to the absolutely unsympathetic and misleading reply that she gave to my hon. Friend the Member for Glasgow, Pollok (Mr. Dunnachie), when she tried to put the blame for the change in housing benefit on local authorities. I draw the right hon. Lady's attention to a letter today in The Times from a widow of 89 who worked until she was 75 and who, because her income was 85p over income support level, has had her housing benefit decreased by £1·25.Will the right hon. Lady confirm that that was the Government's intention, so that the poor elderly should subsidise tax cuts for the better off?

The Prime Minister: No. The amount spent on housing benefit now is about £5·3 billion, and every two households are contributing not only to keeping themselves but to keeping a third house. With regard to the recent reforms, as my right hon. Friend the Secretary of State for Social Services said:
We do not think it right to compensate"—

Hon. Members: Reading.

The Prime Minister: Of course I am reading. I am reading precisely what my right hon. Friend said. He said:
We do not think it right to compensate for those increases in rents introduced to coincide with the new housing benefit scheme, nor increases in rates."—[Official Report,. 27 April 1 988; Vol. 132, c. 360.]
The new system does not compensate for those latest increases. It offers transitional protection for the system just before then and for the rent and rates then levied.

Mr. Riddick: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Riddick: Is my right hon. Friend aware that a brand new textile factory is being built in my constituency at a cost of £3 million, without Government subsidy? Is she aware that this is the first new textile factory to be built in the Colne Valley for over half a century? Does my right hon. Friend agree that this is an illustration of the growing confidence of industrialists in Yorkshire and of the success of the Government's economic policies in bringing jobs and prosperity back to the north of England?

The Prime Minister: I congratulate my hon. Friend on the fact that he has a new factory in his area. The textile industry is doing very well. It is effective and competitive. It produces excellent designs and is providing many jobs. As my hon. Friend knows, unemployment is now falling in all areas, including the north-west.

Mr. Ted Garrett: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer the hon. Gentleman to the reply that 1 gave some moments ago.

Mr. Garrett: Does the right hon. Lady recall that the last question that 1 put to her was on the subject of litter? The right hon. Lady acted with great alacrity in having a photo-call in St. James's park, which nationally achieved good results. If other hon. Members had done the same in their constituencies, it would have helped the nation to get rid of this curse. Will the right hon. Lady now turn her formidable talents to asking local authorities and the members of the farming community to stop cutting their verges surrounding our countryside? Will she try to persuade the farming community to stop cutting hedges at the same height and width, or we shall finish up with one National Hunt course?

The Prime Minister: I am sure that the hon. Gentleman agrees that the landscape that we seek to conserve has largely been created by farming. There was a period when

grants were given to take hedges out, but that period has long since ceased. I agree with the hon. Gentleman that we do not want a countryside that consists largely of prairies, without many of the old hedges that we used to see.

Mr. Michael Marshall: Is my right hon. Friend aware that this week there are six Chinese parliamentary or Government delegations in London, including the Inter-Parliamentary Union group, which she met earlier today? Will my right hon. Friend take this opportunity to say what she sees as the present relationship between Her Majesty's Government and the People's Republic of China?

The Prime Minister: I saw a representative of that group today. The relationship between Her Majesty's Government and China is very good. We have the excellent arrangement of the Hong Kong agreement that we signed. Trade is increasing and we wish to increase contacts between the Chinese people and this country. Cultural contacts are also increasing.

Mr. Fearn: To ask the Prime Minister if she will list her official engagements for Tuesday 10 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Fearn: Is the Prime Minister aware that the north of England tourist trade needs a boost and that if she visited the Lake district, the Yorkshire dales and north Wales that might help to boost the tourism industry of the north-west?

The Prime Minister: I agree with the hon. Gentleman that tourism creates many jobs and that we wish to increase it. I wish him well in that area.

Mr. Dunnachie: On a point of order, Mr. Speaker.

Mr. Speaker: I will take points of order after the Standing Order No. 20.

Rowntree plc

Mr. Conal Gregory: (by private notice): To ask the Chancellor of the Duchy of Lancaster if he will make a statement on his policy towards the threatened Swiss takeover of Rowntree plc.

The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry (Mr. Kenneth Clarke): Nestlé'sbid for Rowntree and Suchard's 29·9per cent. holding are being considered in the normal way by the Director General of Fair Trading, who, under the Fair Trading Act 1973, is responsible for advising my right hon. and noble Friend on the question of reference to the Monopolies and Mergers Commission.

Mr. Gregory: The overwhelming view of shareholders and employees is that Rowntree can best develop as an independent group, and in no way does the offer from Nestle reflect the value of Rowntree's unique range of international brands. Does the Department of Trade and Industry policy consider the Swiss bid a fair one in terms of free competition? The Swiss group can lower the drawbridge and seize in dawn raids assets built up over many years, returning to an impregnable castle. Is it reasonable to allow a predatory bidder to shelter behind its national law, which enables Swiss companies to insulate themselves against hostile bids?
Secondly, has the Department of Trade and Industry policy differed with regard to 1992, in so far as Rowntree has already got a wide policy towards that date and yet it appears that there is not a Government policy related to the European aspects of that?
I should be very grateful if my right hon. Friend could respond to those questions and the wider employment issues that are at stake in this hostile bid.

Mr. Clarke: I am grateful to my hon. Friend for letting the House have his views, as he has let my right hon. and noble Friend and myself have them over the past few days. I am sure that he will continue to do so. My right hon. and noble Friend cannot make a decision about this until he has received the advice of the Director General of Fair Trading, who will give his advice as soon as he can about the public interest in this case and the effects on competition in the United Kingdom, in particular.
With due respect to my hon. Friend, I do not think that the price being offered for the shares will be a matter for my right hon. and noble Friend or for the MMC, if any reference is made. The other matters he raised could certainly be relevant and will be considered.
The question whether Rowntree could make a reciprocal bid could be relevant in some circumstances in cases of this kind. I have no doubt that the Director General will consider its relevance in this case. There are, as a general proposition, very many cases in which bids are made and in which the company at the receiving end of the bid is in no position to make a reciprocal bid, against a small private company, for example, or one where the shares are in a few hands.
With regard to 1992, this country, like the other members of the European Community, will be made a much more attractive place for investment. We are expecting a great deal of inward investment to be attracted into the European Community, and we want to see a lot of

that coming to this country, both on green field sites and in terms of acquisition. We need not fear a loss to our sovereignty through an inflow of capital because, apart from the Japanese, the British remain the principal outward investors in the world.
This case will be looked at on its merits as a single case. My right hon. and noble Friend will decide what the public interest is once he has received the advice of the Director General of Fair Trading, and I am sure that he will consider carefully all the representations of my hon. Friend and those of other hon. Members with an interest.

Mr. Doug Henderson: Is the Minister aware that while his Department dilly-dallies, the City speculates and a major British industry is put at severe risk? Importantly, it is the jobs in the north—in Newcastle, York and Castleford—where we really need them, that are in danger. Is the Minister further aware that the board of the company is beginning to think that it will have to compete with some of the cuts that Nestlè's has threatened, that there is an acute nervousness among the work force up and down the country, and that management and work force want a decision? If they do not have one this week, there may be no decision to make.

Mr. Clarke: My Department and my right hon. and noble Friend are certainly not dilly-dallying; we are complying with the law. The first step is to get the advice of the Director General of Fair Trading, who has to be given the time to give sensible and well-considered advice. There is no question of the whole matter being overtaken by events because, for example, were a controlling interest to be acquired in the meanwhile, if a reference were made to the Monopolies and Mergers Commission there would be powers to require a subsequent disinvestment. Therefore, there is no danger of a fait accompli being presented to us all. The fact is that this matter is following its ordinary course.
I understand the uncertainties among the work force. Whenever there is a question of a merger or a takeover, uncertainty is always bad for anybody and unsettles people. There is no immediate and obvious risk to jobs because most people do not think of acquiring companies within the EC in order to move manufacturing and jobs outside the EC. That would be somewhat contradictory. I ask the hon. Gentleman to bear in mind that Nestlè's is already a major investor and employer in Britain, and a welcome one. It employs about 10,000 people, the bulk of them in the north of England and Scotland.

Mr. Leon Brittan: Does my right hon. and learned Friend agree, however, that if there were to be any question of disinvestment in the future, that would be immensely disruptive, so there is some urgency in the matter in view of the share purchases that are taking place extremely actively at the moment, and that, while the normal procedures have to be followed, they can and should be expedited in this case?

Mr. Clarke: I agree entirely with my right hon. and learned Friend. Plainly, everybody wants the uncertainty brought to an end as quickly as possible and any subsequent order to disinvest could be disruptive. We are awaiting the advice, of the Director General of Fair Trading, who has had the matter in his hands for only the last week. I am sure that he appreciates the urgency of


putting forward advice, and my right hon. and noble Friend will respond as quickly as possible. The matter should be sorted out within a reasonable time.

Mr. Bruce Milian: Is the Minister aware that I have a constituency interest because Rowntree's Gray Dunn factory is located in Glasgow and there is apprehension there, as elsewhere, about the employment implications of any takeover? The Minister mentioned new investment in the United Kingdom, but what is involved here is not new investment but a straight takeover. It is another case of a foreign competitor attempting to swallow up a major British company. It will be completely unacceptable if that is allowed to happen without a reference to the Monopolies and Mergers Commission.

Mr. Clarke: I have already said that I understand how worrying such uncertainty is for people who work for a major company. That is why I have just agreed with my right hon. and learned Friend the Member for Richmond, Yorks (Mr. Brittan) that we all wish to see a decision arrived at as quickly as possible, but that has to be as quickly as the law allows, given the need to wait for the advice of the Director General.
Leaving aside this case, I do not agree with the right hon. Gentleman's broad proposition about foreign predators taking over British companies. The British economy benefits from the fact that we are open and welcoming to inward investment. We also benefit greatly from the outward investment. The Labour party can never make up its mind. When there is British investment overseas it says that jobs are being exported, and when there is investment in Britain it says that wicked foreigners are taking over our firms. The right hon. Gentleman might work on the Swiss trade unions to see whether they will agree with his party and start complaining to the Swiss about the export of jobs.

Mr. Patrick Thompson: In considering the representations, will my right hon. and learned Friend take seriously the concern which has been expressed by many of my constituents in Norwich, North who work in the Rowntree factory in Norwich? Will he consider carefully the representations which have been made to him today and earlier about possible reference to the Monopolies and Mergers Commission and, indeed, about the asymmetry between the position in Switzerland and that in this country?

Mr. Clarke: I can assure my hon. Friend, as I have assured hon. Members on both sides, that we certainly will. Obviously we must have a decision as quickly as possible about where the public interest lies. As I have said, differences between Swiss law and British patent law may be relevant in some circumstances, although with many takeover bids there is no prospect of a reciprocal bid by the company at the receiving end.

Mr. Malcolm Bruce: Is it not a fact that if a British company chose to make a bid for Nestlés, the Swiss Government would block it, and that if the takeover goes ahead it will not be reversible? Will the Minister make it clear that the takeover of Rowntree involves not just a loss of jobs in the north of England but the loss of a corporate headquarters, and that regional policy demands that

corporate headquarters should be retained in the regions? Should not that be a factor to be taken into account by the Monopolies and Mergers Commission?

Mr. Clarke: I will check, but I think that the hon. Gentleman's view on Swiss law is wrong. I do not think that the Swiss Government would step in to stop any takeover. There are curious features in Swiss law which restrict the ability of foreign companies to buy Swiss companies when the Swiss company is hostile. So far, I have been able to trace more British acquisitions of companies in Switzerland than Swiss acquisitions of companies in Britain in 1987.
All this is leading to, not a decision on my part—because I do not take it—nor by my right hon. and noble Friend but simply a request to the House to understand that the legal position is that we must consider this case on its merits and decide what the public interest is. My right hon. and noble Friend will decide that as quickly as he can once he has the advice of the director general.

Sir William Clark: My right hon. and learned Friend should not be stampeded into a decision on this important matter. Is he aware that Nestle has its headquarters in Croydon? As he rightly says, it is a very good employer, employing more than 10,000 people in this country. Does he agree that the amount of overseas investment that our industrialists have made overseas, particularly in America and Europe, has not only boosted the invisible earnings of this country but has also given us an entree into the export markets of other countries? Does he agree that it would be a great mistake to hamper the mobility of investment because that is the only way to keep the economy strong?

Mr. Clarke: My hon. Friend has made an authoritative and clear statement on the principles that should guide us and on the benefits which flow from an open investment policy, subject to the provisions of the fair trading legislation which will have to apply in this case. He has also identified the headquarters of the company; that will solve a mystery for a large number of people. Most of my constituents thought that the company was called "Nessalls" and did not realise that it was a foreign company until the fuss suddenly arose.

Mr. Merlyn Rees: Is the Minister aware that some of us, with significant numbers of employees of Cadbury Schweppes plc in our constituencies, have been written to by Sir Adrian Cadbury, who has pointed out that not only may irreversible decisions be taken about Rowntree, which concerns us much in Yorkshire, but possibly similar decisions about Cadbury—

Mr. Speaker: Order. The question is about Rowntree.

Mr. Rees: I know that it is in Croydon, but Cadbury is in my constituency.

Mr. Speaker: The private notice question is about Rowntree, not Cadbury.

Mr. Clarke: If chocolate is encompassed vaguely by the exchange, Mr. Speaker, I can tell the right hon. Gentleman that my right hon. and noble Friend decided this morning not to refer to the Monopolies and Mergers Commission the General Cinema stake in Cadbury because there seems to be no threat to competition or to the national interest


in that bid. That is a coincidence. Apart from the fact that both companies make chocolate, there is no link between them. The two cases will be considered and decided on separately. The decision on Rowntree will be made when we have received the advice of the Director General of Fair Trading.

Mr. Tim Smith: Is not the key fact in all this the information that my right hon. and learned Friend gave the House earlier—that after nine years of rising overseas investment, the United Kingdom is now the second largest overseas investor after Japan? Should we not think carefully before taking action that might prove wholly counter-productive, leading possibly to an international investment protection war?

Mr. Clarke: I agree with my hon. Friend. Nothing could be more absurd than the general proposition that British capital should not be invested in foreign firms, or that foreigners should not be allowed to invest here. That would do a great deal of damage. On the other hand, the British Government must look after the national interest by determining what is the public interest in a particular case and what is the effect on competition in the British and European market of any proposed merger. That is what we shall do in each case, without being guided by national prejudice.

Mr. Geoffrey Lofthouse: Is the right hon. and learned Gentleman aware that I have a constituency interest in an area that has lost its major industry—mining? The Rowntree factory in my constituency is one of the major employers, and the vast majority of the work force there are very concerned.
Is the right hon. and learned Gentleman also aware that, at a meeting last night, the chairman of Nestlé failed to give any guarantee that there would not be job losses? If he cannot give such a guarantee to the director general, and if jobs will be lost, is that against the public interest, and will the Minister refer the case to the MMC?

Mr. Clarke: All these comments will be borne in mind by those who have to advise and then take the decision. As I have said, it should not be automatically assumed that there is a threat to jobs in any particular bid—certainly not jobs in general. There have been large job losses in acquisitions and mergers between British companies in this country. All companies, regardless of ownership, have to make sure that they make and keep themselves cost-effective in the European market in the sort of goods we are talking about. The Government must encourage the freest possible movement of capital, but make sure that the public interest is not being threatened by any acquisition, from whatever source.

Mr. Michael Heseltine: Is my right hon. and learned Friend satisfied that the guidelines issued to the monopoly and mergers operations are now sufficient to relate to the target of 1992, by when the European market is scheduled to be completed? Will he agree that in any revision of any guidelines we need to be concerned with fairness in the market place? It is very hard to square fairness to compete within the market place with the fact that British companies can be acquired by Swiss companies but it is difficult for the reverse process to take place.

Mr. Clarke: We have just issued a recent document on monopolies and mergers policy, which I am sure my right hon. Friend has seen. We are always open to proposals that it should be revised. The powers that we retain are the broadest possible and necessary ones to look after the public interest as, in the end, my right hon. and noble Friend determines it. It is an inevitable consequence—and, in my opinion, a desirable one—of 1992 that there will be an increase in the flow of inward investment into this country. Indeed, we shall be competing for the largest possible share of that inward investment with the other 11 Community members.
The position vis-à-vis reciprocity and Switzerland can be relevant in some circumstances. However, it is arguable that it is the Swiss who are imposing a burden upon themselves by, to a certain extent, closing their market as a result of second world war legislation. No one wants to introduce similar legislation in this country: it would cut out desirable inward flows of investment.

Mrs. Alice Mahon: Does the Minister appreciate that the consideration of jobs is paramount in towns such as mine, which is the home of Quality Street? Does he realise that Rowntree has been an integral part of the community, as well as Mackintosh? The regeneration of my town is built around the Civic Trust initiative, which incorporates Quality Street, so will he give an early decision on this? The anxiety felt by the employees of Rowntree in Halifax is unbelievable. They have already gone through the trauma of the early 1980s, when the work force was cut by 1,500. There is real fear in Halifax that we could lose our last large private employer.

Mr. Clarke: The hon. Lady correctly expresses the anxiety that is undoubtedly felt in Halifax. I can assure her that it is appreciated by my right hon. and noble Friend and everyone involved in the decision. I agree with her that we need the quickest possible end to the present uncertainty. The general fear that this automatically leads to job losses should not be unnecessarily aroused; nor need the reference to an overseas company alarm people when they realise that it is based in Croydon and is the owner of such well-known names as Crosse and Blackwell and such British products as Branston pickle. Therefore, there is room for a broad economic and public interest judgment to be made in this case, and there is no need for needless fears to be roused excessively at this stage.

Mr. Kenneth Warren: I recognise that the Office of Fair Trading needs time, but may I encourage my right hon. and learned Friend to get the director general to burn a little midnight oil, because he is taking rather a long time to come to a decision about a contentious bid? In such contentious bids, is there not a case for examining the legal position to see whether we can change the system whereby predatory trading can continue on the stock exchange while the Office of Fair Trading is considering a matter?

Mr. Clarke: I shall draw my hon. Friend's remarks to the attention of the director general, although I think that he is being a little severe. If the director general has had the offer for over a week, it is for only a little over a week, and I am sure that he appreciates the need to give advice as soon as he reasonably can; but he must study the matter. I have already said that any trading on the stock exchange does not exclude, if necessary, the exercise of the necessary


powers in the end if, after reference, it is proved to be contrary to the public interest. The recent reference of the Kuwaiti acquisition in BP was after the acquisition of a substantial number of shares. It does not bind the hands of those who ultimately have to decide what to do in the light of any ruling from the Commission.

Mr. Doug Hoyle: Does the Minister realise that there are 13,000 employees who are extremely concerned about this? Does he realise that the brands are very similar, so if the merger goes ahead rationalisation is bound to take place? Is he not taking a cavalier view of the Swiss legislation? If Rowntree cannot make a bid for Nestlé, the same should apply in this country. Does not the Minister realise that if the bid for Cadbury Schweppes goes ahead, along with that for Rowntree, 90 per cent. of our chocolate confectionery production will be owned by American or Swiss interests? Does not that concern him?

Mr. Clarke: I hope that I have made it clear that I entirely share the concern. The law does not allow me to announce any decision on the part of my right hon. and noble Friend. It would not be right for my right hon. and noble Friend to reach a decision, which he has not, until he has the advice of the director general. As I have said, the main purpose of acquisition by, say, Japanese companies in this country is not to move employment abroad but to provide a base for manufacturing and employment in this country. I am merely making propositions that stop people raising needless fears about foreigners buying our companies. I am a little cavalier about Swiss legislation because I am a British legislator, not a Swiss legislator, and it is not within my power to reform the law of Switzerland.

Mr. Patrick McLoughlin: Is my right hon. and learned Friend aware that as the Nestle company is mainly a grocery company and Rowntree is mainly a confectionery company there is no clash of interests? Is he also aware that the Nestlé company has operated in this country for over 120 years and is the employer of more than 10,000 people here?

Mr. Clarke: I am aware of that, which is why I am relieved that nobody has yet demanded that Nestlé disinvest itself of what it already has, or shed the employment in this country. My hon. Friend has made some valid points, which no doubt will be considered along with the counter-points that some of my hon. Friends have made before my right hon. and noble Friend eventually makes his decision.

Mr. Dafydd Elis Thomas: What does the term "public interest" imply when the Minister uses it in this context? Does it imply the regional policy considerations that have been mentioned, or is it a much broader based appreciation, and not the kind of strange English nationalism which we have seen as part of the debate in the House and in the media?

Mr. Clarke: "The public interest" is, fortunately, a broad brush description and no doubt it could, if necessary, be used to encompass almost any decision that one pleased. However, Governments cannot act arbitrarily, so we have issued guidelines about the basis on which we think decisions should be taken in these matters. I commend the recent publication on monopolies and

mergers to the hon. Gentleman, and he will see that it is free of English nationalist or any other prejudice of the kind that he fears.

Sir Giles Shaw: I declare an interest as I had 19 years' employment with Rowntree. I fully understand the point that my right hon. and learned Friend has made about the difficulty of arriving at any view until proper consideration has been given to the matter. Will he recognise, in his comments about reciprocity between Swiss investment and that in the United Kingdom, that a hostile bid in Switzerland would be blocked? There can certainly be agreed investment—that is no problem. Insofar as the Rowntree company has had two predatory investments made by Swiss companies, both of which are regarded as hostile, the situation is clearly unfair. Does my right hon. and learned Friend agree that, in regard to his 1992 campaign to provide a base within which the United Kingdom can take its full share of the European opportunity, such hostile bidding under present conditions is little short of uncompetitive?

Mr. Clarke: I know that my right hon. Friend made his career in Rowntree before he came to the House. He is well informed about the company, and I understand that he is also well informed about Swiss law. He states the position accurately. The points he made about fairness, which were also made by my right hon. Friend the Member for Henley (Mr. Heseltine), are relevant in some circumstances. That is one of the principal matters that the director general is considering, and on which we shall have to reflect when we get his advice.

Mr. Tony Blair: Does the Minister realise that at the very least a reference to the Monopolies and Mergers Commission allows some pause for scrutiny and for the public interest considerations to be examined? Will he accept that we are not talking only about one company; we are talking about the future of an entire region and whether Rowntree remains one of the few independent companies based in the north? Does he know that more than 12,000 people are employed in the company, and is it not high time that the views of the thousands of people who work for the company are held in as much account as those of a score of institutional power brokers in the City of London? Does he agree that, in the event of a hostile bid, Swiss law does not allow a reciprocal bid in the same way as it is allowed under British law?
Does the Minister realise that, as we are now in the run-up to 1992 and we are starting to see the profound pervasive impact of that in every area of industry and commerce, and as in the past two years nearly 70 Euro-mergers have taken place across the frontiers of Europe, this decision will mark a watershed in Government policy? When will the Government understand the critical importance of a coherent industrial policy for Britain which does not put the folly of the free market before the interests of the nation?

Mr. Clarke: First, I disagree with the hon. Gentleman that a reference to the Monopolies and Mergers Commission would provide a pause. We have to decide whether to refer the matter to the Monopolies and Mergers Commission. Many hon. Members who have taken part in these exchanges have pointed out the need to end uncertainty as soon as possible, so a decision is


required on whether to refer the matter in the public interest. It is no good putting it off. Delay would be considerably unsettling.
I agree with the hon. Gentleman about the views of employees, and among all the considerations that we shall take into account obviously my right hon. and noble Friend will have regard to the views that have been put forward today by those hon. Members who represent the employees of the company. All that will be relevant to the consideration that we have to make as quickly as possible.
I shall not repeat what I have already said about 1992, but I think that the hon. Gentleman must think through what he means by 1992. In the run-up to 1992 it will be more difficult, not less difficult, to take a closed, little England view of outward investment, or inward investment into this country. It will be a long and difficult task, but I would commend to Opposition Members a little thinking through of the opportunities of 1992, and the change in the economic climate that 1992 will produce.
For that reason, I do not accept that this is a watershed decision for the future of industrial strategy. That would mean that we should all be seized with excitement about whether it is right or wrong for foreigners to own our chocolate companies. It is an extremely important decision from the point of view of those who work in the chocolate industry, the consumers and the national economy. It will have to be taken dispassionately on the best advice that we can get and it will be taken by my right hon. and noble Friend when he has the advice of the Director General of Fair Trading.

Several Hon. Members: rose—

Mr. Speaker: Order. I have carefully noted those hon. Members who have not been called. Perhaps there will be a further opportunity tomorrow to discuss this subject during Trade and Industry questions, and I shall bear them very much in mind.

William Calvert

Rev. Ian Paisley: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the refusal of the Northern Ireland Office to permit William Calvert out on parole from prison to attend his father's funeral.
The matter is specific and important. This prisoner has almost finished serving his sentence. Next month he will be out on parole. Unfortunately for him and his family, his father died very suddenly. An application was made to the Northern Ireland Office for parole so that he could attend his father's funeral. The Northern Ireland Office sat on that application and did not take a decision until this morning, although the funeral is to take place this afternoon.
It is terrible that the Minister of State, Northern Ireland Office, the right hon. Member for Tonbridge and Mailing (Mr. Stanley), who is seldom in the Province of Northern Ireland, who is obsessed with his own safety when he is in Nothern Ireland and who has no concern, on humanitarian grounds, for a sorrowing family, did not have the decency to inform the family yesterday that young Calvert would not be released. I fail to understand why a prisoner who is to be paroled next month is not to be allowed out of prison to attend his father's funeral.

Mr. Speaker: The hon. Member for Antrim, North (Rev. Ian Paisley) seeks leave to move the Adjournment of the House, under Standing Order No. 20, for the purpose of discussing a specific and important matter that he believes should have urgent consideration, namely,
the refusal of the Northern Ireland Office to permit William Calvert out on parole from prison to attend his father's funeral.
I have listened with concern to what the hon. Member has said, but he well knows that I have to decide whether applications under Standing Order No. 20 should take precedence over the orders set down for today or tomorrow. I regret that I do not find that his application meets the criteria under Standing Order No. 20. I cannot therefore submit his application to the House.

Points of Order

Mr. Jimmy Dunnachie: On a point of order, Mr. Speaker. Due to the inaccurate and misleading answer that the Prime Minister gave me today, is there nothing in Standing Orders to ensure that she should give more realistic and truthful answers to Members' questions? The housing benefit cuts are the responsibility of this Government, not of local government.

Mr. Speaker: The hon. Gentleman may possibly be right, but that is not a matter for me. I understand that he is dissatisfied with that answer, but I cannot help him because it is not a matter of order. If the question is asked again—and there will be other opportunities to raise it—the hon. Member may receive a different answer.

Mr. Anthony Beaumont-Dark: On a point of order, Mr. Speaker. It may be that you


have been ill advised, as we all are from time to time, but bearing in mind the importance of the confectionery industry in my constituency, easily the biggest employer, and bearing in mind—

Mr. Speaker: Order. I know it is difficult.

Mr. Beaumont-Dark: No, it is not difficult; it is disgraceful.

Mr. Speaker: Order. I understand the hon. Member's frustration, but he may have another opportunity tomorrow to ask questions about this subject, if he behaves himself.

Mr. Bob Cryer: On a point of order, Mr. Speaker. I wish to refer to a general principle of the constitution—indeed, a convention of the constitution.
The exchanges on the private notice question demonstrated how important it is that the Secretary of State should make the decision. You consider that issues should be raised on the Floor of the House, but we were unable to question the person who is legally obliged to make decisions because the Secretary of State for Trade and Industry is in the other place. I should be grateful for your advice on how hon. Members can bring their influence to bear so that, when statements such as the one that has been made, today are made we get the organ grinder, not the monkey, and we can question the Secretary of State.

Mr. Speaker: The hon. Member knows that that is not a matter for me. The Chancellor of the Duchy of Lancaster is also a member of the Cabinet.

Mr. Peter L. Pike: On a point of order, Mr. Speaker. If the Prime Minister found that under pressure she had inadvertently misled the House and sought your permission under Standing Orders to make a statement to correct what she had said, would you be able to provide time to allow her to do that later today?

Mr. Speaker: Any personal statement has to be cleared with me, but I am not certain that suggestions would be appropriate.

Mr. Tom Clarke: On a point of order, Mr. Speaker. You will recall that in another lengthy written answer to a question from the hon. Member for Epping Forest (Sir J. Biggs-Davison) the Prime Minister used these words:
housing benefit has been changed".—[Official Report, 6 May 1988; Vol. 132, c. 634.]

Given that the Prime Minister outlined what she said were her achievements, that does not seem to be consistent with the reply that she gave this afternoon to my hon. Friend the Member for Glasgow, Pollok (Mr. Dunnachie). Taking into account your excellent interview at the weekend—

Mr. Speaker: Order. Let us not go into that, please. What is the point of order for me today? I believe the answer to the question was on Friday, not at the weekend.

Mr. Clarke: I thank you for what you have just said, Mr. Speaker, but, given that you want there to be an excellent relationship between Parliament and the people, do you accept that that also includes local government? If the Government are making it difficult for local authorities by blaming them for something with which they have had absolutely nothing to do, is it not right that you should give us your guidance on the possibility of a parliamentary debate?

Mr. Speaker: I am responsible for questions of order in the House. I cannot be held to be responsible for questions on the Order Paper, and certainly not for the answers that are given to them. That is a matter for parliamentary debate. Hon. Members must find parliamentary opportunities to raise these matters. I cannot deal with them.

Mr. Michael J. Martin: On a point of order, Mr. Speaker. I heard what the Prime Minister had to say. On Saturday I heard about 30 constituents complaining about the same matter to which my hon. Friend the Member for Monklands, West (Mr. Clarke) referred.

Mr. Speaker: Order. I have just replied to the hon. Member for Monklands, West (Mr. Clarke). I, too, have constituency surgeries, but I cannot answer his question. That is not my responsibility.

Mrs. Maria Fyfe: Further to the point of order raised by my hon. Friends the Members for Glasgow, Pollok (Mr. Dunnachie) and for Glasgow, Springburn (Mr. Martin), is it not deplorable that the Prime Minister is so parsimonious with the truth that she prefers to—

Mr. Speaker: Order. I have already said that hon. Members must find parliamentary opportunities to deal with matters of that kind. They must not seek to debate them through the Chair.

Takeovers and Mergers (Employment Protection)

Mr. Doug Hoyle: I beg to move,
That leave be given to bring in a Bill to require consultation by employers with employees before any takeovers and mergers of companies.
It is appropriate that I should bring this proposed Bill before the House, particularly after the debate on Rowntree. My hon. Friend the Member for Bradford, South (Mr. Cryer) complained that the answers about Rowntree were given by the monkey rather than by the organ grinder. I notice that the Chancellor of the Duchy of Lancaster has departed, although this is a Bill about takeovers and mergers and employees' rights. So the monkey is not even here to listen to what I have to say about my Bill. The employees—there were 500,000 of them last year who were affected by it—will take note of the absence from the Front Bench of the Chancellor of the Duchy of Lancaster on a matter as important as this.
The Government rely solely on competition when considering takeovers and mergers. Competition, when protecting British companies, is like having an igloo in the Sahara. By allowing mergers and takeovers to continue unbridled, the Government have created a casino capitalism which is good for the predator, the speculator and the insider trader—although they came a little unstuck over the Guinness and Distillers takeover—but which is bad for Britain, for the economy, for employment and for the consumer.
For instance, last year, expenditure on takeovers and mergers was £15·4 billion. Takeovers affected 500,000 jobs, yet, there was only £10 billion investment in manufacturing industry in the United Kingdom. That figure was still 10 per cent. below the 1979 figure. Overseas investment, which is close to the Government's heart, represented 17·8 billion. There is something wrong in the portals of the City if people can find money for takeovers, mergers and overseas investment, but cannot find money for investment in this country.
Let us consider some of the mergers that have been contemplated. For example, there was the attempted takeover by BTR, which was a rusty bucket company, and of Pilkington's, one of our few world leaders in flat glass, which spent money on research and development and had its headquarters and plants in the United Kingdom; indeed, it had its headquarters in my region. That takeover was prevented only by the opposition of the employees, the trade unions and the local authorities in that area. There was no support from the Secretary of State for Trade and Industry, who refused to refer it to the Monopolies and Mergers Commission.
There has been another recent takeover attempt in my constituency—the bid by Blue Circle Cement for Birmid Qualcast, which is one of the last of our producers of consumer durables and a world leader in the manufacture of cookers and lawn mowers. That company saw off the foreign competition, yet it could have been taken over by Blue Circle, which has no expertise in the manufacture of consumer durables. That takeover was prevented only by a recount of votes, involving a few thousand votes out of many millions, yet the company could have found itself with management that has no expertise in engineering.
We have already discussed this afternoon the attempted takeover of Rowntree by Nestle. A hostile bid could not take place in Switzerland because of the legislation, but the foreign predator may come over here and take over a successful company. It wants to do that because it has not been able to get into Europe. It wants to buy the brand names and close down many of the plants. It is also disgraceful that the bid for Cadbury by General Cinema has not been referred to the Monopolies and Mergers Commission. Once again, one of our leading companies faces the possibility of a foreign takeover.
I am concerned about the employees. The views of shareholders, even absentee shareholders, are taken into account. The views of the "hands off" financial institutions are taken into account, although they may have shares in both companies. However, the views of the company employees are not taken into account, yet those people have built up the company, created the wealth of the company. Their future and that of their families lies with the company. They are sold off with the company like cattle. It is time that that ceased.
That is why I am seeking to introduce this Bill. The employees or the trade unions representing the employees should be consulted at least 30 days before a bid is finalised. In addition, the company making the bid should justify that bid to the employees and the trade unions. The company should state its future plans, its future employment prospects and what will happen to the plants of the company that is being taken over. It must say whether it will remain a United Kingdom company, whether it will carry out research and development in this country and whether it will conduct sales from this country. An application by the employees or the trade unions for a meeting with one or both companies should be granted within 14 days, as of right. If the companies fail to comply with those conditions, the Secretary of State would block the bid.
I am asking for nothing outrageous. This is an extremely modest Bill. Similar conditions already apply in the Netherlands, where employees are consulted in this way before any bid can go ahead. The Government's consideration of such bids, purely on the basis of competition, is far too narrow. What about the consumer interest and the national interest? What about the effect on the manufacturing base of this country? All those criteria should be taken into account before any bid is allowed.
I wish to make this country less of a haven for the predator, the speculator and the insider trader. I want to protect the employee, the consumer and Britain's manufacturing base. Above all, I want the national interest to be taken into account. I have pleasure in presenting the Bill.

Question put and agreed to.

Bill ordered to be brought in by Mr. Doug Hoyle, Mr. Don Dixon, Mr. Terry Davis, Mr. Ernie Ross, Mr. Robert N. Wareing, Mr. Frank Cook, Mr. Alan Meale, Mr. Derek Fatchett, Mr. Chris Smith, Mr. James Lamond, Mr. Joseph Ashton and Mr. Michael J. Martin.

TAKEOVERS AND MERGERS (EMPLOYMENT PROTECTION)

Mr. Doug Hoyle accordingly presented a Bill to require consultation by employers with employees before any takeovers and mergers of companies: And the same was read the First time; and ordered to be read a Second time upon Friday 8 July and to be printed. [Bill 163.]

Orders of the Day — Finance (No. 2) Bill

Clauses Nos. 22, 23, 26 to 28, 31, 42, 49, 91, 98, 127 and 128 and Schedule No. 7.
Considered in Committee. [Progress 9 May.]

[MR. HAROLD WALKER in the Chair]

Ordered,
That the order in which the remaining proceedings in Committee of the whole House on the Finance (No. 2) Bill are to be taken shall be Clause 91, Schedule 7, Clause 127, Clause 128, Clause 42.—[Mr. Brooke.]

Clause 91

ASSETS HELD ON 31ST MARCH 1982

Mr. Nicholas Brown: I beg to move amendment No. 13, in page 75, line 16, leave out '1982' and insert '1974'.

The Chairman of Ways and Means (Mr. Harold Walker): With this it will be convenient to take amendment No. 14, in page 75, line 20, leave out '1982' and insert '1974'.

Mr. Brown: With the leave of the Committee, I shall seek to withdraw amendment No. 13. However, the Committee is entitled to a brief explanation of the reason. We tabled the amendment, not because we believed—

The Chairman: Order. It might be better if the hon. Gentleman were to speak to the amendment and then ask the leave of the Committee to withdraw it.

Mr. Brown: I shall do precisely that. The insertion of the date 1974 does not set out the Labour party's ultimate response to the Government's proposals. We hoped that the amendment would be a device whereby we could have discussed matters of substance on the Floor of the House first, before the Committee moved on to discuss other amendments, particularly those in respect of line 38 which are matters of detail that should have been more properly discussed in Committee. However, I understand that the Government wish to discuss matters of principle in a clause stand part debate. It would be rather odd, therefore, if Opposition Members were to speak to the amendment while Conservative Members spoke in the clause stand part debate. It would be for the Committee's convenience to have just the one debate and, to help the Committee in that respect, I shall seek to withdraw my amendment.

The Chairman: Perhaps I should first put the Question to the Committee and then come back to the hon. Gentleman.

The Paymaster General (Mr. Peter Brooke): In view of the spirit of the speech made by the hon. Member for Newcastle upon Tyne, East (Mr. Brown), I shall not delay the Committee long, but my hon. Friends would not wish me to let this moment pass without drawing attention to 1974, the date that the Opposition selected as the fulcrum of their amendment. It shows either, in the case of the dog, a return to his vomit or—

Mr. Nicholas Brown: With the greatest respect, this is not in the spirit of what I have just said.

Mr. Brooke: —it is a return to one of the greater moments of the Labour party. I remember that 1974 was the year in which I opposed the right hon. Member for Islwyn (Mr. Kinnock) in his former constituency.
I would be the last to suggest that the inflation engendered by the Labour Government of 1974 was of a quality such as that which brought down the Roman empire, and which is recorded in the pages of Suetonius and Gibbon, but—

Mr. Nicholas Brown: This is most ungracious. There was no capital gains tax in the Roman empire. This cannot possibly be relevant.

Mr. Brooke: I am concluding my remarks. It would not be right to let this moment pass without drawing attention to the date that the Opposition selected. I am only sorry that they will not have a chance to develop their reasons for selecting it.

The Chairman: The hon. Member for Newcastle upon Tyne, East (Mr. Brown) has already sought leave to withdraw the amendment. Does he have the leave of the Committee to withdraw the amendment?

Hon. Members: Aye.

Amendment, by leave, withdrawn.

Mr. John Butterfill: I beg to move Amendment No. 15, in page 75, line 16, after '31st March 1982' insert
'or which was acquired after 31st March 1982 with any chargeable gain arising on the corresponding disposal being held over under section 79 of Finance Act 1980 or rolled over under section 115 of the Capital Gains Act 1979.'.

The Chairman: With this it will be convenient to take the following amendments: No. 5, in page 75, line 38, at end insert—
'(5) Where in the case of a disposal of assets which were acquired after 31st March 1982—

(a) the person making the disposal had acquired the assets by applying the proceeds from a disposal before 6th April 1988 or other assets which he held on 31st March 1982 or had disposed of before 31st March 1982 and the consideration for that acquisition was reduced under section 115(1)(b) of the Capital Gains Tax Act 1979, or
(b) the person making the disposal had acquired the assets before 6th April 1988 from another person who held the assets on 31st March 1982 and the consideration for that acquisition was reduced under section 79(1) of the Finance Act 1980,
it shall be assumed that on acquisition those assets were sold by the person making the disposal, and immediately reacquired by him, at their market value on that date.'.
No. 7, in page 75, line 38, at end insert—
'(4A) Where in the case of a disposal of assets which were acquired after 31st March 1982—

(a) the person making the disposal had acquired the assets by applying the proceeds from a disposal before 6th April 1988 of other assets which he held on 31st March 1982 or had disposed of before 31st March 1982 and the consideration for that acquisition was reduced under section 115(1)(b) of the Capital Gains Tax Act 1979; or
 (b) the person making the disposal had acquired the assets before 6th April 1988 from another person who held the assets on 31st March 1982 and the consideration for that acquisition was reduced under section 79(1) of the Finance Act 1980


it shall be assumed, if the taxpayer so elects, that on acquisition those assets were sold by the person making the disposal, and immediately reacquired by him, at their market value on the day of acquisition.'.

Mr. Butterfill: I congratulate the Government on their proposal to rebase capital gains tax to 1982. It is an excellent decision and it will be widely welcomed in the business community, having regard to the enormously damaging inflation that took place before that time and the fact that gains which accrued arose largely out of inflation rather than any real gain.
There is, however, an anomaly here. Chargeable transactions that took place between April 1982 and April 1986 will be taxed retrospectively on the gain which occurred before 1982 if the gain was deferred through roll-over relief. Perhaps my hon. Friend did not intend that to happen. I hope that, if he did intend it, he might reconsider the point. It seems rather unfair that people who legitimately took advantage of roll-over relief should have the base of their gains taken back to 1965, whereas all other gains will be rebased at 1982.
I simply ask my hon. Friend the Paymaster General whether there is any possibility of his reconsidering the matter.

Sir William Clark: I support my hon. Friend the Member for Bournemouth, West (Mr. Butterfill). There is an anomaly here. Like him, I welcome the change of date to 1982. The high rate of inflation from which we suffered occurred before 1979–80, so capital gains tax had become a tax on inflation. I should have thought that all fair-minded people would welcome the 1982 valuation.
A person who acquired an asset in 1970, for example, and sold it after 1982 with roll-over relief will find that the roll-over provision is now ignored in regard to the capital cost of the asset. If somebody sold an asset, such as a farm, and there was no roll-over relief, he would have paid CGT at 30 per cent. With roll-over relief, however, the rate is bound to be 40 per cent. That is a second anomaly.
A third anomaly, which I am sure my right hon. Friend the Chancellor did not intend, has been drawn to my attention by the Historic Houses Association. It involves the maintenance fund for heritage property. If roll-over relief is not allowed, the fund will pay at 35 per cent.
Will my hon. Friend reconsider this matter? I do not suggest for a moment that my amendment is worded correctly, but perhaps he will re-examine the matter to see whether the anomaly can be ironed out. If the Bill must stay as it is, I do not think that the rate of CGT should exceed 30 per cent., for a rate higher than that would create some hardship.

Mr. Tim Boswell: I commend the spirit of the amendment, and my own. Although the amendments were drafted in different places, they seem to have come to almost the same wording.
This matter was drawn to my attention by the National Farmers Union. The value of land rose sharply, almost as soon as capital gains tax was introduced in 1965, until 1982, since when it has virtually plateaued. Many farmers, especially those who have made partial disposals or

changed farms, rather as other business men may have exchanged assets, perhaps as part of an expansion scheme, will find that they are caught.
Retrospection always surfaces in Finance Bills. I agree that there is no perfect solution. I remember spending many years going into Finance Bills trying to work out formulae for what was retrospective, what was retroactive and what was merely unfortunate. Here, however, if an asset holder disposed of his property before 1982, he would be liable to capital gains tax, but those who disposed of an asset between 1982 and the Budget would have received at least indexation relief for any gains after 1982 and they would have known the situation that applied.
People with roll-over, however, and no anticipation of what would happen, let alone the fact that they now come into a higher rate of tax, are caught retrospectively and, I hope, accidentally. The Treasury Bench may want to say something about the welcome improvements that have been made in retirement relief. In extremis, one can always die and avoid the tax that way, but there are people who will be caught.
I declare a personal interest, not least because I happen to be my own constituent. Although my circumstances are not confined to me, they illustrate the extreme unfairness of the present arrangement. My family purchased a farm in 1967 so, for practical purposes, we are virtually contemporary with CGT. A motorway is being constructed across the farm. In January, I had notice to treat on a portion of my land, which is being taken. That pre-dated the Budget and falls within the spirit of my comments about the past. Unfortunately, on the second and larger portion of the take, we received a compulsory purchase order on, if my memory is correct, 19 March 1988.
There was therefore an enforced disposal which took place after the Budget, which could not avail itself of the relief that would have taken effect on or after 6 April.
I cannot believe that any sane or properly advised person would have conceived of disposing of their property in those circumstances. Making a more general point, it merely instances the way in which compulsory purchase orders still give rise to resentment and to an extreme case of the anomaly. I would not have dreamt of mentioning that example had there not been the broad and general issue to consider, and one is entitled to return to it.
There are people who have acted in good faith. They have moved from one farm to another, or from one business to another, and the value of their assets has expanded. Only in the case of those who happened to have different assets acquired after 1982 with roll-over or in special circumstances such as those I have mentioned—where I would, in essence, have to acquire an asset in order to roll over to it-would such difficulties arise. I commend the amendments to the Committee and invite the Treasury Bench to think again.

Mr. Brooke: Amendment No. 15, moved by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), seeks to give the benefit of rebasing where tax has been deferred on the occasion of a gift or the replacement of business assets between 1982 and 1988. Unlike amendment No. 5, spoken to by my hon. Friend the Member for Daventry (Mr. Boswell), and amendment


No. 7, spoken to by my hon. Friend the Member for Croydon, South (Sir W. Clark), amendment No. 15 does not appear to involve exempting the whole deferred gain. However, it does not spell out what it would do instead. If my hon. Friend the Member for Bournemouth, West will allow me, I will turn to amendments Nos. 5 and 7.
The amendments of my hon. Friends the Members for Daventry and for Croydon, South relate to situations where, under the Bill, the benefit of rebasing will not be available. The approach in the Bill is that rebasing will apply where, after 5 April 1988, the taxpayer disposes of an asset which he held in 1982 or acquired by a no-gain, no-loss transfer from someone who held it then. However, rebasing will not be available where, between 1982 and 1988, tax was deferred under the provisions for gifts and for replacement of business assets. That is because the taxpayer would be disposing of an asset which he acquired after 31 March 1982.
There are arguments of principle both ways. On the one hand, there is the argument underlying the approach in the Bill, which is the comparison with people who in the same circumstances opted not to defer tax between 1982 and 1988. They will have paid tax on their full gains at the time without the benefit of rebasing. It is questionable whether those who deferred paying tax should benefit compared with those who paid their tax at the time. The opposite argument, which underlies the amendments, is that the full benefit of rebasing will be available where the tax deferral took place before 31 March 1982. Therefore, to give no benefit from rebasing, where the deferral was between 1982 and 1988, could be seen as a little harsh.
However, my hon. Friends' amendments would be unjustifiably generous. They would exempt from tax the whole of the gain deferred between 1982 and 1988 and not just the pre-1982 component. The deferred gain will often contain a large post-1982 element and it would be wrong to exclude it from tax. To do so would be unfair to the majority of capital gains tax payers who, when disposing of assets acquired before 1982, would have their post-1982 gains taxed in full. There is no reason to exempt the post-1982 gain.
As to whether the pre-1982 gain should be exempted, there would frequently be acute difficulties in trying to identify precisely the pre-1982 component in the deferred gain. Even in the most straightforward case, the necessary records may no longer be available. Many cases will not be straightforward. It would be necessary to cater, for example, for the situation where a business asset sold in 1983 was subsequently replaced by a number of replacement assets, some of which have since been sold, others replaced, and some still owned by the taxpayer. Trying to unscramble all that in an attempt to identify the precise pre-1982 component in any deferred gain still in charge would involve long and complicated rules and impose a major burden of compliance on taxpayers. It would also be impossible to observe if, as would often be the case, records were not complete.

Mr. Nicholas Brown: I am following the Minister's remarks with interest. In order to extend my knowledge of these matters, can he say how much it would cost the Government to accept his hon. Friend's proposals?

Mr. Brooke: I will, if I may, return to that matter later.

Mr. Boswell: If I may follow through the argument advanced by my right hon. Friend concerning the

difficulties of computing the pre-1982 component, I readily concede that it would add another line to the calculation. However, in certain cases assets would have to he valued back to their more speculative 1965 values. If that can be calculated in principle, why cannot the 1982 value also be calculable?

Mr. Brooke: I hear what my hon. Friend says, but perhaps I may continue with the point that I was adducing.
My hon. Friend the Member for Daventry will appreciate that there are real difficulties. If anything needs to be done, it must be made simpler and much more practicable. The amendments of my hon. Friend avoid those practical difficulties simply by excluding the whole of any deferred gain from tax. As I have said, that goes too far. I may say, in reply to the hon. Member for Newcastle upon Tyne, East (Mr. Brown), that the figure he seeks is essentially unquantifiable but, on the basis of my hon. Friend's amendments, the cost could be up to £50 million. In any event, the amendments go too far and would often exempt from tax large real gains made since 1982. At the same time, the amendments would give no benefit where there has been a succession of deferrals between 1982 and 1988—for example, where a business asset had been replaced by another asset which had itself been replaced.
I have listened carefully to the points made by my hon. Friends, and between now and Report I shall consider sympathetically whether there is anything that we can do in the circumstances that have been described.

Sir William Clark: My right hon. Friend spoke of the difficulties of defining the pre-1982 component and the roll-over relief, but the roll-over relief could be calculated. If it had been given on a profit, say, of £10,000, we know there would have been a deferment of £3,000 capital gains tax. I anticipate no administrative difficulty in assessing the amount. Nevertheless, I am delighted that my right hon. Friend will look again at this matter.

Mr. Butterfill: I am grateful for the sympathetic way in which my right hon. Friend has listened to my comments, and I am grateful also for the contributions made by my hon. Friends. A number of important points have been made, and I am grateful to my right hon. Friend for the helpful way in which he has responded to them. I hope he will look carefully at the situation in which the actual rate of tax could be increased from 30 per cent. to 40 per cent. As was said, that could create a most unfair anomaly for many taxpayers. However, in view of my right hon. Friend's remarks, I beg to ask leave to withdraw my amendment.

Mr. Brooke: I should not want to leave the debate on this amendment with my hon. Friends under any misunderstanding about the terms in which I have responded. I have said that I will look sympathetically at the points made, but I am not responding to the questions of detail—particularly that relating to the 30 per cent. tax rate.
As to the point made by my hon. Friend the Member for Croydon, South, it is in cases where the asset has been dismembered that complications arise in identifying the pre-1982 component.

Sir William Clark: Surely, if there has been a multiple acquisition of assets and the roll-over has gone on and on, the Inland Revenue has the record.

Mr. Brooke: The Inland Revenue, as my hon. Friend says, knows how much gain is being deferred. What the Revenue does not know—I am sorry if I did not manage to communicate this in my earlier remarks—is how much is attributable to the period before 1982.

Mr. D. N. Campbell-Savours: Could the Minister put a cost or value on the amendment that we have been discussing?

Mr. Brooke: I refer the hon. Gentleman to my earlier answer to his hon. Friend the Member for Newcastle upon Tyne, East.

Amendment negatived.

Clause 91

ASSETS HELD ON 31ST MARCH 1982

Question proposed, That the clause stand part of the Bill.

Mr. Brooke: When the Government came into office in 1979, capital gains tax was unjust and damaging. Its most inequitable feature was that it taxed inflationary gains: it was in part a tax on maintaining the real value of the taxpayer's original capital. It was for that reason that we introduced indexation relief in 1982. In 1985, the indexation provisions were extended to give full relief for the effects of inflation after 1982. But at that time it was not possible to remove the charge on the inflationary gains of the 1960s and 1970s. The cost was too high.
My right hon. Friend's careful stewardship of the public finances has enabled him to tackle the problem in his Budget this year. That is what clause 91 does. Ideally, we would have extended indexation back to 1965, but when we looked into it, we found major difficulties. Quite often, the necessary records would no longer be available, particularly with shares, where there are provisions for pooling the cost of shareholdings built up in stages, and the precise cost and date of acquisition of a particular block of shares may well not have been retained. Moreover, extending indexation back in this way would have involved a very substantial compliance burden on taxpayers, who would often have had to undertake a good deal of work to put capital gains computations on the new basis; and it could have added significantly to the Inland Revenue's staff costs. Those practical problems ruled out the possibility of indexing the system back to 1965.
Instead, what clause 91 and schedule 7 do is bring forward the base date for computing capital gains from 1965 to 1982. This means that capital gains and losses will be confined to gains and losses arising since 1982, and of course only to real changes since then.
As in 1965, when capital gains tax was introduced, there are special rules to prevent taxpayers from being taxed on a larger gain, or given relief for a larger loss, than they have actually made. One example might be where a shareholding was bought for, say, £10,000 in 1975; was worth £2,000 in 1982; and is sold in 1988 for £15,000. Since 1982, the gain is £13,000, but overall only £5,000. The new rules will ensure that the taxable gain—subject to indexation—will be limited to the taxpayer's actual gain of £5,000. Another example is of shareholding bought for, say, £10,000 in 1975 which was worth £20,000 in 1982 and is sold in 1988 for £8,000. Here—again subject to indexation—the loss for tax purposes will be the taxpayer's actual loss of £2,000, not the £12,000 decrease in value since 1982.

Mr. Dafydd Wigley (Caernarfon): I am following with interest, as I did at the time of the Budget, and I can see how that is worked out in relation to shares that had a specific value in 1982. But how will a computation be made in relation to, say, a second home? How will the value of that home in 1982 be established? If it is done by taking its present value and working back on an indexation basis, does that not automatically cancel out any liability to capital gains tax? Surely there is a considerable difficulty here. What advice can the Minister give on how to overcome it?

Mr. Brooke: The hon. Gentleman is quite right: it is a difficult issue. But it is an issue that already obliges us to make valuations from 1982 for the purposes of the existing legislation, and it is therefore something in which we have practice. I would be the last to deny that it is difficult, but nevertheless it is already under way.
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In some cases there may be a gain under present rules and a loss since 1982, or vice versa; or there may be neither a gain nor a loss under the pre-Budget system. In those circumstances, the clause provides that from 6 April there will be neither a gain nor a loss for tax purposes. Again, there were equivalent rules in 1965 when capital gains tax was introduced.
These rules are fair, but they complicate the system, and they mean that many people will have to continue to keep records going back before 1982. As I have said, there were similar rules for 1965, when CGT was introduced. However, taxpayers were then able to make an election, covering their quoted shares and securities, that gains and losses would always be computed by reference to the 1965 market value, rather than under the special rules. Clearly, where an election was made, taxpayers were relieved of the need to keep pre-1965 records.
It has been suggested to us that, rather than be required to maintain pre-1982 records, some people would prefer to be able to make a similar election for 1982. This would of course mean that they would lose the protection of the special rules in the Bill. But it would in some cases relieve them of a significant compliance burden, and simplify their capital gains tax computations. And it would be wholly at the taxpayer's option.
We have decided that there is considerable merit in these suggestions. We propose to introduce measures under which taxpayers will be able to elect that, from 6 April 1988, their gains and losses on assets acquired before 1982 should be computed by reference to 1982 market values.
An election of this kind will be irrevocable. It will apply to all a taxpayer's assets, and to all his disposals after 6 April this year, including any that precede the election. In the case of groups of companies, it will have to be made—as was the case with the 1965 election—by the principal company, on behalf of the whole group.
If taxpayers' liabilities are not to remain open indefinitely, a time limit has to be set for making such an election. We propose that there should be two legs to this. First, all taxpayers will be able to make an election between now and April 1990, whether or not they make a disposal during that period of an asset acquired before 1982.

Mr. Boswell: May I intervene briefly with a simple query? We are aware that changes are being made in the


taxation of husband and wife. Will some special provision be necessary in that case, or is the matter already covered in existing law?

Mr. Brooke: The simple answer is that the taxation relating to husband and wife does not come in until 1990. Nevertheless, I shall pay attention to my hon. Friend's question.

Mr. Boswell: May I follow my question with another small point? What happens when an asset is jointly held? Is it likely to be possible, for example, for a husband to opt for a 1982 valuation, and for his spouse to opt for the alternative?

Mr. Brooke: My hon. Friend is luring me on to marshy ground. I do not wish to be absolutely categorical about the contents of taxation that seeks to be independent, but I think that the answer is no.
That first leg of our proposal will enable those who decide that they do not want the burden of keeping pre-1982 records to get rid of them immediately.
Secondly, if an election has not previously been made when a taxpayer makes his first disposal—after 5 April 1988—of an asset held in 1982, he will still be able to make one within two years of the end of the accounting period or tax year in which he makes that first disposal.
With these provisions, those who would prefer to can have the protection of the special rules in the Bill, by simply deciding not to make an election. But those who are willing to dispense with that protection will be able to opt for a less complicated regime, in which they need no longer keep pre-1982 records. This seems to us a useful and sensible improvement to the provisions as drafted in the Bill, and we shall be tabling the necessary provisions at Report stage.

Mr. Tim Smith: Is my right hon. Friend aware that the changes he has just announced will be most welcome, especially to those who have smaller investments and for whom the rules in the Bill could have proved extremely complicated?

Mr. Brooke: I am grateful to my hon. Friend for his intervention.
I would like to make a few detailed technical points. Rebasing will use actual market values at 31 March 1982. Under the 1965 rules, for some assets, gains over a period straddling 1965 were time-apportioned in order to arrive at the gain since 1965—although the taxpayer always had the option of taking the actual 1965 market value. That was for practical reasons, to avoid forcing taxpayers to obtain a 1965 valuation of certain types of assets. There is no equivalent of the time-apportionment rules in this Bill. They are not needed, because, as I said to the hon. Member for Caernarfon (Mr. Wigley), 31 March 1982 market values are already built into the system for the purposes of calculating indexation relief. To include a time-apportionment option now would be an additional—and unwelcome—complication.
Rebasing will apply to companies—as well as to individuals, personal representatives and trusts. In general it will apply only where taxpayers are disposing, on or after 6 April 1988, of assets which they themselves held on 31 March 1982. But paragraph 1 of schedule 7 contains an important exception. It extends rebasing to cases where the taxpayer acquired the asset by a no gain, no loss transfer

from someone who did hold it in 1982. The main examples are where one spouse has given an asset to another, or an asset has been transferred within a group of companies.
The rest of schedule 7 is concerned with technical consequentials to rebasing. There is one provision, though, which it may be helpful to mention specifically now. At present, taxpayers who want indexation to be computed on the 1982 value have to say so. With rebasing, in most cases gains will be computed by reference to 1982 values— the exceptions arise under subsections (3) and (4) of the clause. It therefore makes more sense to provide, as we have done in paragraph 10 of the schedule, that indexation relief on assets acquired before 1982 will automatically be computed from the higher of actual cost or the value of the assets at 31 March 1982.
Clause 91 is part of a general reform of capital gains tax. We shall, of course, be debating the other clauses upstairs. But, very briefly, with the new top rate of income tax, and with inflationary gains taken out of tax, my right hon. Friend the Chancellor was able to propose, in clauses 92 to 97, the assimilation of the rates of capital gains tax with those of income tax. At the same time, it is proposed in clause 101 that the annual exemption, which was specifically increased in 1982 because relief was not at that time given for pre-1982 inflation, should be reduced for 1988–89 to £5,000. Under clause 98, which the Committee debated yesterday, husbands and wives will, from 1990, be taxed independently on their gains.
Taken together, these reforms will achieve a much more equitable balance between the tax burden on capital gains and that on income. Rebasing will remove the long-standing injustice of taxing inflationary gains. It will unlock many assets acquired in the 1970s and earlier, freeing capital for new investment. The new election I have announced today will enable taxpayers, if they wish, to discard pre-1982 records. Assimilating capital gains tax and income tax rates will substantially reduce the incentive to have capital gains rather than income, with all the distortions that result. I commend these provisions to the Committee.

Mr. Nicholas Brown: In his exciting speech, the Minister has clearly moved the Committee, mostly to other parts of the building, with his explanation of the problems faced by those who are unfortunate enough to have made a capital gain prior to 1982. The response from Opposition Members is that it is typical of the Government, in this Budget, yet again to be sorting out the problems of the wealthier members of society rather than the problems of the poorest. We have heard a lot about the problems of those who have made a capital gain prior to 1982. What about the problems of the generality of our population who have not come anywhere near doing any such thing? This Budget and the clause have absolutely nothing to say to them.
Every tax concession is potential public expenditure forgone. It is our view that a principal objective of public expenditure should be to redistribute wealth from those who have it to those who do not, rather than to redistribute further wealth to those who already have it.

Mr. Butterfill: Will the hon. Gentleman give way?

Mr. Brown: If the hon. Gentleman will allow me to go a little further in my speech, I shall give way later. I want to move on to the detail of the changes as well as the generality.
The changes, in keeping with the main direction of the Budget proposals, do nothing to address the problems of the dispossessed or disadvantaged. The changes do nothing except give a further tax break to the wealthy. It is important to remember, as I reminded the Committee yesterday, that fewer than one in 100 of our fellow citizens pay capital gains tax. The clause, if accepted, means that still fewer people will pay capital gains tax, but they will still have their capital gain.

Mr. Butterfill: May I press the hon. Gentleman on his definition of the wealthy? Is he aware, in relation to property ownership, that quite a large number of people acquired property, originally for their own occupation, went abroad and while abroad let the property and it became subject to rent control and security of tenure was given to the tenant? Such people may have ended up with an unwanted investment property, originally purchased for their own occupation. Some of those people—I know of some in my constituency—are not wealthy people but are quite poor and have had to move into rented accommodation themselves. Those people, with mainly pre-1965 gains, will be specifically helped by this legislation. Does the hon. Gentleman at least approve of that element?

Mr. Brown: It is perfectly proper for Conservative Members to make the point about questions of degree and about types of capital gain. Those are perfectly proper areas for debate. However, the clause we are discussing goes much further than that, and I shall deal with the question of degree later.
At a total cost of £55 million to the Exchequer, capital gains tax on an individual's pre-1982 gains has been abolished. There is a similar cost of £235 million in respect of companies' gains. As I said before, that is public expenditure forgone. The key question that the Minister will have to answer when he responds to the debate is why the Government have chosen to spend public money in this way rather than in the many other ways in which it could have been spent. When the Minister responds to that point, as I am sure he will, the Committee will have to consider his remarks alongside yesterday's generosity to married couples who pay capital gains tax.
No doubt the defence will be that the gains, which were subject to taxation prior to rebasing were, at least in part, inflationary gains. The Chancellor referred to them in his Budget speech as purely paper profits. Yet that was compensated for in the taxation system by a flat rate tax of 30 per cent. and, alongside that, pretty generous individual annual exemptions.
It is also the case that inflation has a bearing on other tax as well as just capital gains tax. Therefore, the Government have to make the case for singling out capital gains tax for special sympathetic treatment. As I understand it, again by looking at what the Chancellor said in the Budget, the principal reason for that is that assets will be unlocked because they will no longer be subject to what he described as penal taxation and because the changes will help small business men and farmers in particular.
In proving that contention, the Government have two hurdles to clear. First, they have to demonstrate their case by example. They have to show that the operation of

capital gains tax has become unreasonably burdensome without rebasing and that rebasing is not just a handout to rich companies and individuals—particularly to those who are asset-rich such as property companies and, one suspects, particularly London and south-east based companies. In saying that I come to the intervention made earlier by the hon. Member for Bournemouth, West (Mr. Butterfill)—I accept that there are probably specific areas where such a case can be made out. I contend that such cases should be dealt with on that basis rather than to move from the particular to the general.

[Mr. Patrick Cormack in the Chair]

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Even if the Government could clear those two hurdles, they have another, higher hurdle to get over. They have then to make a case for complete tax exemption on capital gains to 1982, which is in the clause. It is one thing to argue reasonably that a tax is too high or there are special circumstances in the period covered, but it is quite another to say that the tax should be done away with altogether. The implication is that every capital gain made in the 1970s potentially subject to capital gains tax was solely the result of what the Chancellor exaggeratedly stated to be rampant inflation. Such an argument is not tenable, but there it is.
The Government rebasing wipes out any tax liability for gains on assets accruing before 1982. However, capital losses generated before April 1988 appear to be carried forward and offset against rebased gains to be generated in future, even if the losses were accrued before the new April 1982 base.
One suspects that there are likely to be a spate of disputes between valuers and claimants about valuations of unquoted shares and of property. That must create an extra work load for the Inland Revenue, which has public expenditure implications, without any gain to the Exchequer; quite the reverse.

Mr. Butterfill: The hon. Gentleman will know that I am a chartered surveyor by profession, so I have some knowledge of valuing property assets. My hon. Friend's suggestion will probably simplify the work of the Inland Revenue and those valuing such assets. Certainly, we had to look back sometimes as far as 1965 at the dusty old records that we were obliged to keep to justify valuation, so this change will be a great benefit to us in carrying out those valuations. The change will be of benefit to the valuation profession as a whole.

Mr. Brown: I enjoyed discussing matters of detail with the hon. Member for Bournemouth, West in the previous Parliament, when I had Opposition responsibility for legal affairs rather than finance. In Committee, the hon. Gentleman attended to matters of detail assiduously. His intervention today reflects that.
I accept that the Government's proposals might simplify the work of valuers, but the change as a whole is bound to incite a great influx of work. Indeed, I understand that it is intended precisely to do that. There will be implications in that case for public expenditure, which I should like to have heard the Minister address, but perhaps he will do so in the wind-up. This matter, of course, is peripheral to the main thrust of our objections, and not their cause. Our main fear is that rebasing, together with indexation and the generous annual exemptions, which the Minister said will be disaggregated


for married couples from 1990, and a range of other reliefs and exemptions, will together thoroughly undermine the effectiveness of capital gains tax.
By undermining the tax, the Government act to the advantage of wealthier citizens—the less than one in 100, and perhaps many fewer, who have to pay the tax. It means that the burden of public expenditure falls on the rest of us. To the Labour party, that cannot be fair, and thus we shall be opposing the Government in the Lobby.

Mr. Tim Boswell: First, I thank my right hon. Friend the Paymaster General for his response to our amendment. We understand that his response is conditional, but we are grateful for the terms in which he made it. I did not have the opportunity to reply appropriately when the amendment was introduced but I shall do so now, especially as I decided rather churlishly to bowl the Minister a couple of bouncers on the tax treatment of married couples.

Mr. Brooke: As my hon. Friend has referred to bouncers, it might be easiest for me to clarify my response. He will recall asking me whether husbands and wives would be able to make separate elections on jointly held assets. After a number of preliminary embroidering remarks, I said I thought not. I have to reverse that answer now, and say yes, because the election has to be made in respect of all an individual's assets. Each spouse can make a separate election that will apply to their respective interests in jointly owned property in the same way as to assets that are not jointly owned. The position was the same for 1965.

Mr. Boswell: I am most grateful to the Minister for that concession and clarification. I must also respond to the Minister's general points about the propriety of trying to strip inflationary gains—particularly, dare I say, those occurring in the 1970s, when there were certain inflationary habits in Government. That must be desirable, because those of us who held any sort of assets in the 1970s must have been apprehensive that contingent liabilities would mount up or become actual liabilities in some cases, when assets were sold or had to be disposed of. It should be no part of Government's role to attack capital through the contingent vehicle of inflation.
However, I welcome the Government's proper action to bring into line the system of taxation for capital gains along with that of income. I welcome that, equally, because it is no part of balanced and sensible government to have a regime where people can convert income into capital gains to take advantage of a beneficial tax regime. The spirit behind the Government's action must be acknowledged.
My remarks can be more detailed on certain aspects.

Dr. John Marek: If the hon. Gentleman believes what he has just said, would he go along with us and ask the Minister why there should be a £5,000 exemption from capital gains, which is much higher than the single or married person's allowance?

Mr. Boswell: I note the hon. Gentleman's point. My own view is that, bearing in mind that capital assets by definition tend to be held somewhat longer and that there are rules for trading in assets, as the hon. Gentleman knows, to bring people within the income tax system, it seems to be a reasonable balance and maintenance of relief. The point has been taken, but clearly one would not

want to see a very wide divergence between the two regimes. Perhaps I should go further and say that when we settle down under the new system, the distribution effects must be monitored. I shall deal with those points again in a moment.
With regard to compulsory purchase orders, I must record the fact that they do not enable a vendor to control a sale, as he has no choice in the matter, nor always the timing of a sale, which might cause difficulties for some people. Equally, in cases of voluntary disposals of assets, bearing in mind that capital gains tax is now at a higher rate than the 40 per cent. income tax rate for some higher rate taxpayers, as the hon. Member for Newcastle-upon-Tyne, East (Mr. Brown) implied, one might need to consider the de minimis provision, if not in this Bill then later, whereby a slightly larger proportion of an asset can be disposed of without attracting capital gains tax at the time.
Milk quotas were a new asset for farmland post-1982. It is odd that the milk quotas for many farms are now worth as much as the farms. Although the Government have responded by giving gains tax relief on milk quotas, the overall computation is not favourable. I should be grateful if the Government considered this matter.
Under the present system, capital gains have been brought broadly into line with income, but we are well aware that most people tend to hold on to capital assets significantly longer. My right hon. Friend the Paymaster General referred to the great virtue in wiping out the need to keep records pre-1982. It is what I think the ancient Romans called novae tabulae, or new tables—it is a matter of wiping the slate clean and starting again. We all know what happens to papers, despite the best will in the world. The family dog may get to work on the paperwork, as happened to me, or one's children may move away—

Mr. A.J. Beith: The dog ate my homework—a likely story!

Mr. Boswell: I am certainly not saying anything unkind about dogs in this Committee. One may well find that records become less perfect and valuations less certain. I believe that the base year of 1982 will eventually need to be adjusted upwards, perhaps to 1992, which is another significant date for other reasons. I beg Ministers to think forward about whether there may be better ways of bringing the assessment of gains on continuing assets into the system in a way that is equitable in terms of income and calculable.
Stock dividends instance the problem well. My right hon. Friend the Paymaster General knows that many companies, for various reasons—modernity may be one—offer shareholders the option of stock dividends. People may receive rather portentous pieces of paper, which we are told are important, announcing that they may be entitled to have another seven shares, which will be taxable but will be paid as a stock dividend. That may be fine, but, because of the complications of the capital gains tax computations, many small shareholders would be ill-advised to take that option. It would lead eventually to an expensive calculation on a very small asset. As Ministers know, transactions for small shareholders are now extremely expensive and are a major part of the disposition of any holding. The benefits become limited when the accountant's bill is added, since all these annual or semi-annual processes must be followed through.

Mr. Butterfill: Does my hon. Friend agree that it seems clear that it is Inland Revenue practice to suggest a figure for settlement of a negotiated capital gain and that this is unfavourable to the taxpayer? The Inland Revenue knows that the cost of going to the special commissioners is so high that it can strike a bargain down the middle on the cost.

Mr. Boswell: That certainly would happen.
We now have machinery that is intended to be fair as between income and capital gains, and that is entirely proper. Many ordinary asset holders hold capital assets much longer than income, but the circumstances are not always identical. We need to put on our thinking caps to find a better regime for the future so that people are fairly taxed on their assets, without undue or onerous complications.

Mr. Alistair Darling: I understand that the hon. Member for Daventry (Mr. Boswell) is a farmer. It is good to see that he maintains the tradition of farmers in complaining about the injustices visited upon them. I have some sympathy with him if he has to put up with a motorway going through his farmland, but he is keeping up the good tradition of pointing out the difficulties that afflict his industry.
I should like to address the general philosophy behind the clause. We are entitled to ask why this measure is such a priority. At first sight, it is quite attractive to suggest that anomalies should be wiped out. It is particularly welcome that those people with small savings and those who rely on their savings in old age can now realise their assets when they need them. We suspect, however, that the priority and motivation behind the clause differ entirely from that. I hope that the Minister will specify precisely what problem has led to the need for this clause. We should have regard to the fact that there is a substantial cost in terms of tax forgone—£235 million for companies and £55 million for individuals.
5.15 pm
We have heard that there seems to be a difficulty in keeping records. The Treasury has seemed to go out of its way to save work for accountants. The justification for many measures seems to be that we do not have records, so we should not attempt to recover what might be due to the Exchequer. The principal reason advanced for the clause is that, between 1965 and 1982, there was rampant inflation, which has caused a manifest injustice. The Chancellor has said:
But for gains that arose before 1982 the tax falls largely on purely paper profits resulting from the rampant inflation of the 1970s. In other words, it bites deeply, and capricously, into the capital itself."—[Official Report, 15 March 1988; Vol. 129, c. 1007.]
The right hon. Gentleman went on to say that he felt that the capital gains tax should fall only on real gains and not on paper gains.
It is interesting that 1982, not 1979, is taken as the base year. The Government constantly tell us that the good times started to roll in 1979. We remember that inflation reached record heights shortly after the Conservative party attained office and continued for some time. Within Conservative mythology, the years 1979 to 1982 have been written off, almost like the lost years in the Soviet Union—it does not exist; it never happened, we do not want to know about it. That is why 1982, rather than 1979, has been chosen. The Government are well aware that, by

1982, inflation was starting to subside but the markets were fairly depressed. The Government have chosen the optimum year.

Mr. James Arbuthnot: The year 1982 was chosen because that was the year in which indexation was introduced.

Mr. Darling: The justification for 1982 is perfectly apparent. Indexation could have been backdated to before 1982. It lies with the Government to arrange matters in any way they want. The year 1982, rather than 1979, was chosen for obvious reasons, which I have given.
There was inflation, but surely no one is saying that there were not real gains at the same time. Even if it is desirable—I accept that there is some merit in this—that a person should not be taxed for paper gains purely because of inflation, real gains would have been made between 1965 and 1982. That is our principal objection to the measure. A second home bought in 1966 for £16,000 might have been worth more than £100,000 in 1982, and no one says that that was due purely to inflation. It was a real gain and a real benefit which accrued to the taxpayer. and it is wrong that such gains should be written off in this way.
As we said in the debate on the business expansion scheme, those who benefit are generally the better-off, rather than those at the lower end of the income and capital scales. That is the fundamental reason why Opposition Members object to this scheme. It seems to be another example of the Government looking after the very people whom they have supported, not only in this Finance Bill but in previous financial measures. It is manifestly unjust and I cannot see why it should be made a priority at this time.
We are entitled to ask, with nearly £300 million in tax forgone, what else it could have been spent on. This Finance Bill is about the arrangements of the country's financial affairs for the next 12 months, at a time when there are unprecedented calls on housing benefit, the Health Service, and so on. Is it not the case that this money might well have been diverted to other fields instead of being given in what is, in effect, a tax handout to those who, although I do not say are not deserving, perhaps do not have the priority needs that others do?

Mr. Butterfill: The hon. Gentleman states that we have given an unwarranted advantage to those who would have had pre-1982 real gains, as he puts it. Would he bear in mind the fact that we have at the same time increased the rate of tax from 30 per cent. to 40 per cent. and reduced the threshold of the disregards, so that the overall effect may well be in some cases to increase the tax paid?

Mr. Darling: Some individual taxpayers may well lose, but the general thrust is to reduce the burden. The thresholds have been reduced and, as was said earlier, the position of a married couple in 1990 will be infinitely better. The emphasis is going the wrong way once again and I cannot see—I look forward to the Minister responding to this—the justification for writing off gains, inflationary and real, in those years. To my mind, that adds weight to our opposition to this clause. We have to remember that 31 per cent. of our population are living in poverty. If the Government showed the same concern for the anomalies that they face within the social security


system I would not have so much objection. We are asking for equal treatment for those who have and those who have not.
There will have been inflationary gains and real gains in those years, but there were also inflationary wage rises, as the Government constantly tell us. So it is not true to say that somehow capital is alone in having suffered the ravages of inflation. The Government have shown themselves, in this clause, to be extending the double standards that they have practised for a long time now. It is for these reasons that we shall oppose this clause, because it is quite wrong and without justification.

Mr. Tim Smith: I am sorry that the hon. Member for Edinburgh, Central (Mr. Darling) feels the way he does, because anybody who looks back over the 23-year history of capital gains tax—I think that it was Lord Callaghan, the then Chancellor of the Exchequer, who introduced it in the 1965 Finance Bill—will see that although, of course, there is a flat rate, as the hon. Member for Newcastle upon Tyne, East (Mr. Brown) said, the rate of inflation must have been around 3 or 4 per cent.; it cannot have been more than that. So at that time, the kinds of inflationary gains that have subsequently taken place simply could not have been contemplated.
It will not do for Opposition Members to say that, because in their view the poor are being treated unjustly, that is some kind of justification for continuing to treat taxpayers unjustly, whoever they may be. Fairness is an important principle that should underlie taxation.

Mr. Campbell-Savours: Can the hon. Gentleman perhaps enlighten us as to how he justifies people not paying tax on real gains?

Mr. Smith: I have hardly embarked upon what I want to say, but I certainly was not planning to try to justify that. I believe that it is a matter of regret that the Treasury was unable so to arrange the new system that indexation was backdated to 1965. But we are talking about 23 years' history of certain assets, and we are told that this is simply not a practical proposition. I am sure that must be right.
The point that I want to make most forcefully to the Committee, because nobody has so far mentioned it, concerns what the rate of inflation was between 1965 and 1982. The hon. Member for Edinburgh, Central mentioned somebody who bought a house for £16,000 in 1965 and sold it for £100,000 in 1982. Since inflation over that period was 450 per cent., that would have taken the price up to £88,000, so the real gain would have been £12,000. The inflationary gain would have been £72,000. That is the size of the problem that the Government are addressing in this clause. People felt very strongly that this was desperately unfair, because there had been 450 per cent. inflation in the period and all of it was being taxed. In terms of fairness, that cannot be justified.
The consequence of that was that people did not sell their assets unless they absolutely had to. That is why I believe that the Treasury is right to say that now that we have a fairer system people, whether individuals or companies, will look at their asset portfolios, and we shall see assets unlocked. The Treasury has determined that the net result of this will be a loss of revenue of £55 million in the case of individuals and £230 million in the case of companies.
It must have made certain assumptions about people's behaviour. It is very difficult to know how people will

behave in the face of tax changes, except that one can he quite sure that they will not behave in the same way as they were behaving before. We all know that there will he more activity in this field. People will start to dispose of their assets, so we can expect the number of taxable transactions to rise. I would not be at all surprised if, just as in the case of the cuts in income tax, this did not lead in the long run to an increase in the yield from capital gains tax.
It is this that highlights the division between the two main parties in the House. The Opposition are concerned all the time, when it comes to taxation policy, with redistributing wealth, whereas we are concerned with what system of taxation will maximise the yield and encourage the creation of wealth, which will lead in turn to the generation of more taxation to pay for more public expenditure. It was a matter of regret to me that the Treasury was not able to make this change earlier, but I understand that that simply was not possible against the economic background that prevailed at the time. So the Government have said that from 1982 onwards there will be some degree of indexation.
It will be recalled that it is not unprecedented for a Chancellor of the Exchequer to take action when taxpayers are being hard hit by inflation, because in 1975 the right hon. Member for Leeds, East (Mr. Healey), who was then Chancellor of the Exchequer, seeing the crippling effect that inflation was having on companies, introduced overnight a huge stock relief and also increased capital allowances. These changes were introduced in 1975 because the cash flow of companies was so very badly affected.
I am glad that the same has now been done for people who, for one reason or another, have to pay capital gains tax. I also support the increase in the rate to 40 per cent. so that there will no longer be an incentive for taxpayers to convert income into capital, and vice versa. These changes make for a fairer and simpler tax system and I certainly support the inclusion of this clause in the Bill.

Mr. Wigley: I should like to follow on from the comments that have just been made. The hon. Member for Beaconsfield (Mr. Smith) referred to people looking at their asset portfolios. I must admit that not very many of my constituents spend their time looking at their asset portfolios, and many of them would not have the faintest idea what they are. That concept applies to a very small proportion of the people, although I accept that it may be of importance to Conservative Members.
In my constituency, this sort of question is more relevant to small farmers and small business people, whose assets are probably in one item—their land or their building. The portfolio is one small item, in all probability, and is not changed around for the sake of getting tax benefits. It is something that has to work very hard in order to keep itself alive.
I agree with the hon. Gentleman, however, on the desirability of backdating indexation to 1965, if that were practicable. That would have kept the two concepts clear—ensuring fair play in relation to the considerable inflation that was taking place at certain times in the intervening period and the capital gains that took place—and we would not be considering whether important sums of money, such as £290 million, were being appropriately dealt with.

Mr. Butterfill: Does the hon. Gentleman agree that small farmers would still have considerable problems in maintaining adequate records of, for example, improvements to their farms, which would need to be taken into account in computing any further liability to tax?

Mr. Wigley: Yes, I am aware of that and of the need for change for that reason. Therefore, I am not completely hostile to the changes. I share the Opposition's doubts about the Government's priorities, and I should have liked more to be done for those groups who are not helped by the Budget, but I can see the argument for trying to do something to overcome some of the complexities and technical difficulties facing many people, including small farmers in my constituency. I am aware from the farmers, and in particular from the accountants trying to help them, of the problems that they face. None the less, £290 million is £290 million, and in a year when it has been impossible to find £150 million for the full implementation of the Disabled Persons (Services, Consultation and Representation) Act 1986, one starts asking questions about priorities.
There is clearly a need to ensure a balance between the treatment of capital and revenue income. That balance must ensure that people invest in capital or with a long-term view to revenue income as opposed to short-term capital gain. I understand that some Conservative Members may not share that view, but that should be the motivation of the tax system. It should try to ensure that that is the outcome of the rules.
The hon. Member for Wrexham (Dr. Marek) made a valid point a moment ago when he said that we should be asking what is the acceptable threshold for exemption—what should be the allowance in that context. If a single person's allowance is £3,000, what is the justification for £5,000 in the context of capital gains? Last night we discussed the most appropriate level for a husband and wife who now have an allowance of £10,000 between them. It might have been possible for them to have an allowance of £3,000 or £3,500 each, bringing us back to the kind of level that exists for a single person. That would have been consistent with what we are trying to do in capital gains tax. The opportunity to achieve greater consistency in order to get the balance right seems to have been missed, yet hon. Members on both sides of the Chamber seem to be looking for balance.
Milk quotas have been referred to, and they definitely affect Wales. Given their special treatment, one hesitates to think what will happen, perhaps in the early 1990s, if milk quotas come to an end. I know that the conventional wisdom is that that will not happen, but it could, and I can imagine there being quite a minefield in that area. However, I would be straying well out of order if I went too far down that road.
I want to return to a matter on which I pressed the Minister earlier. Although I listened to what he said, I am not sure whether I understood him sufficiently well to explain the matter to my constituents. If one of my constituents had bought some land for £20,000 in 1966, which he disposed of now for £150,000, there would be a capital gain of £130,000. If the value of indexation from 1982 to 1988 is 50 per cent., that would put the value of the assets in 1982 down to £100,000, making a gain of £80,000, which would tie in with the 450 per cent. change in the

value of money over that period and a little more in real terms. However, I cannot see why, on the basis that indexation exists and there is a need now to make certain calculations for capital gains purposes, it gives us a valid valuation for this new datum base, which has to be established for 1982 for calculation purposes. I do not believe that that is the case.
The original value in 1966 and the present value, plus the index working back to 1982, is fine for present purposes, but on the changes that does not give us a real valuation for 1982. Whereas that can be easily worked out for shares, when it comes to land or buildings, which may, for a variety of reasons, have changed value, it is not so easy to work out a meaningful value in 1982. It may be possible to pluck a value out of the air and call it a notional value and do a split on a time basis, or something like that, but that is a far from satisfactory basis for establishing an important datum line for the future—the value in 1982.
I should be grateful if the Minister would clarify in more detail exactly how the existing provisions for the calculation of capital gains tax liability give a figure which is meaningful in the context of the use to which it will be put under clause 91. Unless that can be satisfactorily clarified, we are in danger of building an edifice on a base in 1982 which, in many instances, may be far from solid. Such a change will be with us for years to come. That point needs to be clarified. The definition needs to be equally applicable in all capital gains cases. We should not have a system which works well only for stocks and shares and creates a minefield in other areas. More than that I do not wish to say at this stage, but I should be grateful for the Minister's detailed response to those points.

Mr. Arbuthnot: Opposition Members have expressed their general dislike of the clauses relating to capital gains tax, but there is one point that they should not overlook and that is that for those who make large gains the effective rate of capital gains tax will have gone up by 10 per cent. as a result of the Bill. The capital gains tax rate for those who make smaller gains or who have smaller incomes will go down by 5 per cent. That effect of the Bill should not be ignored.

Dr. Marek: Can the hon. Gentleman justify the fact that the Chancellor, when he made his Budget statement on 15 March, gave people who pay capital gains tax until 6 April to arrange their affairs to their best advantage?

Mr. Arbuthnot: Yes. I have felt for a long time that the tax changes in Britain are introduced far too suddenly in order to prevent a few days of evasion or avoidance here or there. If we could have a bit of warning so that our tax legislation was sensible, rather than for the short-term bringing in of some revenue to the Treasury, we would end up with a much more sensible set of tax laws.
I welcome what my right hon. Friend has said in relation to the election for clause 91. I hesitate to say this, and I hope that I may be forgiven for doing so, but I raised on Second Reading the complications introduced by clause 91 and I am delighted that my right hon. Friend has been so responsive so quickly. It has been a habit of mine so far to be rather critical of our complicated legislation, particularly in relation to tax, and I am most grateful to my right hon. Friend for responding, not necessarily to me, but to all the representations that have been made

Ms. Joyce Quin: The only sympathetic chord in me that the Government have struck this afternoon has been on the prospect of people destroying records before 1982. Even with my monthly household bills, it is difficult to keep records for more than a few months. Therefore, the idea of destroying records before 1982 is rather attractive. Apart from that, the rebasing put forward by the Government is not justified—or, at least we have not been given sufficient information to decide whether it is justified or not.
My hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) pointed out that fewer than one in 100 taxpayers pay capital gains tax. I wonder whether the Government estimate that the figure will be further reduced this year because of the rebasing decision. We have also heard about the cost to the Exchequer which rebasing will involve. Many of my right hon. and hon. Friends feel that the Government have been generous enough already to big business and to wealthy individuals and that this is just an additional way of being even more generous to them.
The people who are likely to benefit from rebasing will probably live in one corner of the United Kingdom, the south-east of England. This is yet another example of adverse regional trends. The answer to a parliamentary question tabled by my right hon. Friend the Member for Swansea, West (Mr. Williams) made it clear that higher rate taxpayers are concentrated largely in the south-east of England. Rebasing will channel even more money into that area. If the Government have any figures, I should like to see them. When analysing the Bill and its probable effects it is difficult to know precisely what the regional implications are because the Treasury seldom gives us the figures on a regional basis. Therefore, we do not have official sources for the figures which many of us suspect would be revealing.
Several hon. Members have referred to the extent to which profits made prior to 1982 were real profits or simply the result of inflation. I am in no doubt that many substantial real gains were made. An article in The Guardian on 17 March dealt with the reaction of the stock market to the changes in capital gains tax. It said:
For example, shares in the electronics group Racal rose more than 7,000 per cent. between 1965 and 1982 when it was one of the market's star performers ... A large number of private and professional investors have now been relieved of capital gains tax liability on that enormous profit up to 1982".
I do not know how closely the Government have looked at the short-term and long-term effects on the stock market of the rebasing decision. Certainly many people decided to sell their shares because of it and some shares fell as a result.
The same article pointed out:
Brewery, property, life assurance and investment trust shares all benefited from the removal of pre-1982 tax liabilities".
Selling was held back because of the previous policy on capital gains, but now big financial combines have been relieved of their huge capital gains tax liabilities.

Mr. Tim Smith: Does the hon. Lady appreciate that every company quoted on the stock exchange has benefited from the change, for the very good reason that between 1965 and 1982 inflation was 450 per cent.? Does not she think that one principle underlying taxation policy should be fairness?

Ms. Quin: I accept that a principle underlying taxation policy should be fairness, but I do not think that anyone could claim that the Budget was an example of fairness. The example I quoted made it plain that, whatever the level of inflation, there were considerable real gains made in addition.
I should like to hear the Government's view on how rebasing may affect the migration of individuals and trusts. When they transfer their residence, they will not have to pay capital gains tax on their way out of the United Kingdom. Has a calculation been done of the possible cost of the rebasing decision?
5.45 pm
Several Conservative Members have referred to the accompanying measures on capital gains tax and to the fact that income tax rates and corporation tax have been brought into line. Have the Government considered the consequences for small businesses of the decision to have 40 per cent. and 25 per cent. rates? I understand that those associated with the British Venture Capital Association are concerned that it may mean a reduction in the amount of venture capital.
While I am not arguing against the change to 40 per cent. for capital gains tax, I believe that the Government should consider measures to make sure that small businesses, particularly in areas where they are most needed, can still expand and have access to venture capital. In this respect the Government might like to consider the proposal of the Labour party for a national investment bank with a large amount of money involved in venture capital.
I do not think that the Bill will do anything to end tax avoidance. Are the Government planning to offset the gains which will be made from the measure by a more efficient clampdown on tax avoidance?
I agree with my right hon. and hon. Friends that the Government have got their priorities wrong. The people about whom I am most worried are those with dwindling capital, such as pensioners who find that, because of the cuts in benefits and the changes in social security, they are for ever having to dip into the small nest eggs which they had saved over many years. It is distressing that people are worried about the payment of funeral bills when their small stock of capital has depreciated because they have had to dip into it so many times as a result of recent Government financial decisions. We are concerned about helping such people, and we do not believe that the Government have got their priorities right in the Finance Bill.

Mr. Rhodri Morgan: It is a pleasure to have the opportunity to speak on a matter such as capital gains tax rebasing, because we simple roadsweepers, swineherds and such like on this side of the Committee have the opportunity to be educated by the professionals on the Conservative Benches from accountancy, merchant banking and chartered surveying. We are getting a free education. We should really pay to be Members of Parliament for the duration of the Finance Bill Committee stage.
I want to point out to the Minister and his cohorts on the Benches behind him that we are not yet satisfied about capital gains tax rebasing. Some Conservative Members say that rebasing has been done because of the concept of fairness, while others say that it has been done because of


economic performance. It is the supply side myth or the supply side causal relationship, as they would see it. The idea is that the performance of the economy will be improved by the rebasing because assets will be more fluid and flexible and people will be more willing to invest and take risks.
That is not necessarily the same thing as the idea that inflationary gains, which are not real gains, should not be taxable because they are not real. Taken in isolation and without regard for any one year's Budget, we would agree with that point. But how to tax inflationary gains, or how to avoid taxing them, and how to leave the tax system taxing effort and risk on a fair basis is extremely complicated, and rebasing to 1982 does not solve the problem.
I could give several examples. The hon. Member for Bournemouth, West (Mr. Butterfill) was present when we discussed the impact of the poll tax on the valuation of assets for the purposes of local government finance. That is relevant, because RPI inflation and asset inflation are entirely different; in fact, they can work in reverse. If retail prices index inflation increases, asset inflation—or deflation—can go in the opposite direction. The hon. Member for Bournemouth, West intervened in my speech when I made the point that asset price inflation has been high in areas such as Cardiff in the past two years. The valuation of office blocks and shops has doubled in the past two years. While retail price inflation may have been 7 or 8 per cent., asset price inflation has been 200 per cent.
How does one compensate for this asset price inflation, which is working at almost South American levels? Two weeks ago, on Third Reading of the Local Government Finance Bill, the hon. Member for Bournemouth, West took the view that, as there had been no rating revaluation in provincial cities such as Cardiff since the late 1960s, businesses there were paying artificially low rates, which led to artificially high rates of valuation. If I follow the argument, rent and rates are a combined charge on the user, so valuation is a residual element after people have paid rates and rents, and there can be hyperinflation of assets—of house prices in the south-east, of office block prices in provincial cities such as Cardiff.
It is, then, an extremely complicated matter to try to strip out RPI artificial gains. How are we to handle the genuine gains of Uruguayan proportions, which have infected western economies, at the asset level, but not at the RPI level?

Mr. Boswell: Does the hon. Gentleman agree that typical families who own one house and experience this high level of asset gains—which he fairly reports—usually want to transfer to another house? At the moment they can avail themselves of the capital gains tax exemption.

Mr. Morgan: None of us wants to introduce capital gains tax on the principal residence. I merely make the point that asset price inflation has risen to hyperinflationary levels during the past two years, whereas RPI inflation has been at levels that we would consider low since the OPEC price rises of 1972–73. Asset price inflation in house prices in the south-east and many other parts of the country of the past two, five or seven years has caused great difficulties for new buyers. However, that is not a matter for today.
Today we are interested in what has caused the hyperinflation of assets in this country in the past two years—for example, high street shops in provincial centres with good trading records and office blocks in centres such as Cardiff. How are those inflationary gains to be stripped out? Are they inflationary or real? How can they be compared with the so-called inflationary gains that the Government want us to forget and wipe away—the gains from 1965 to 1982, and above all those following the OPEC rises of July 1973, when hyperinflation took hold of the RPI?

Mr. Butterfill: Perhaps I can help the hon. Gentleman about property values. The reason that there has been an unusually high increase in the value of shops in many places is that there has been an increase in rental values, largely due to increases in turnover and profitability for shop operators. Those rental values have been compounded by a drop in the level of return required by institutional investors. That has meant that the multiple that people are prepared to pay of the rent demanded for shops has increased. Those two factors combined have led to the increases the hon. Gentleman mentioned.
Does the hon. Gentleman agree that there has been a relative shift between one asset and another, with one becoming more popular than the other? That is the reason for so-called real gains. I am not sure whether he thinks that that should necessarily be taxable per se.

Mr. Morgan: I shall have to reduce the offer I made to pay Conservative Members for the quality of technical education that we are getting this afternoon. The hon. Gentleman has now removed one of the key elements that he mentioned in his intervention on Third Reading of the Local Government Finance Bill. I believe that the Secretary of State for the Environment agreed with the hon. Member for Bournemouth, West when he said that one of the reasons for hyperinflation in asset value in the last four years in typical high street locations in the south of England and in prosperous provincial shopping centres such as those in Cardiff and Newcastle was the long-delayed rating revaluation—since 1969 or, in some cases, 1973.

Mr. Butterfill: I said that that was an underlying cause of part of the rent increase, not all. Rates have been held down, but I have just said that, in the context of capital values, one must take into account not only the rent increase but the reduction in yield required to produce enhanced capital value.

Mr. Morgan: I take it that the hon. Gentleman agrees with me that he said two weeks ago that rent rises were partly caused by the delayed rating revaluation, and also be reducing yields. If part of the reason for the hyperinflation of asset values in commercial property in the past two years has been a delay in the Government's district valuers' service carrying out the revaluation—we all agree that it should be carried out more frequently than every 19 years—it becomes extremely complex to try to strip out RPI inflationary gains—unreal gains—which should not be taxed, and real gains, which should be taxed and from which every honest taxpayer should be willing to contribute.
If the delay in revaluation was at least a partial cause of artificially high rent returns, and therefore of the valuation put on commercial property, it is extremely difficult to


work out why we are trying to correct, through the rebasing provisions, one form of unfair taxation on purely monetary gains, but are not trying to compensate for the other problems because they were apparently caused by Governments of both parties grossly delaying commercial revaluation, which delay has contributed to hyperinflation in important commercial properties in the past two years.
My hon. Friend the Member for Gateshead, East (Ms. Quin) mentioned Racal as the classic example of the company that did well when the rest of the country did badly. During the OPEC decade, when huge quantities of disposable income were shifted out of this country into OPEC countries—between July 1973 and early 1986, when oil prices fell from $35 a barrel to $8 a barrel—massive gains could he made by selling, for instance, tactical radios to armies in the Gulf states. Companies in that line did extremely well during that brief period and made 7,000 per cent. gains. As I think the hon. Member for Beaconsfield (Mr. Smith) said, they have stood still during the past two and a half years, as all the income that went to the Arab countries suddenly sloshed back into western countries when the price of oil dropped to roughly half what it was in early 1986.
One then tries to work out what is the inflationary gain that we all assume was general throughout the economy for companies that were having to cope, like all western economies, with the problems caused when all that disposable income was being shifted from western consumers to the OPEC countries. Some companies did extremely well out of that because they managed to spot the opportunities for selling goods to the states which suddenly had all that disposable income.
How does one equate the proper way of compensating for inflationary gains for companies such as Racal, which was the supreme example of the gainers from the OPEC price rise, with that for the companies at large, such as those in heavy industry, which manufactured capital goods for our use, when investment was falling through the floor and they had to suffer a wait of 10 or 12 years without an order for a power station or a steel works? This is an extremely complicated issue.

[MR. TED LEADBITTER in the Chair]

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The hon. Member for Beaconsfield mentioned my right hon. Friend the Member for Leeds, East (Mr. Healey) and the introduction of stock appreciation relief in 1975. I think that we would all agree that that relief was given at an extremely generous level. Its function was, in part, that of stock appreciation relief and in part, to do the job about which we are now talking. We could probably agree that it was at least in part intended to cover capital gains that would be taxable but that ought not to be taxable but, as it was too complicated to rebase capital gains so that inflationary gains would not be taxable, stock appreciation relief meant that corporation tax dropped to virtually zero receipts in the closing years.

That was partly because profitability was extremely low as consumer disposable income was suddenly washed out of western countries and into the OPEC countries and it was difficult for people to make profits in the western countries in the period from 1974 to 1977. Stock appreciation relief went somewhat over the top partly in order to compensate the company not only for the cost of replacing stocks at inflationary prices but for the capital

gains which they were not making, but which they appeared to be making on paper with rampant inflation in the period from 1974 to 1981.

Mr. Tim Smith: I do not think that stock relief went over the top. Each year it compensated the company, as a deduction from its corporation tax liability, for the extra replacement costs of carrying the same trading stock. That change was forced on the Chancellor of the Exchequer at that time. If he had not made it, many companies would have gone to the wall. However, at the same time, people were forced to pay capital gains tax on similar inflationary gains, and that was wrong.

Mr. Morgan: I do not know whether the hon. Gentleman is completely disagreeing with me or is coming 50 per cent. towards what I said. I do not say that the prime purpose was not stock appreciation relief, because it was. No honest member of the staff of the Inland Revenue would have been willing to engage in administering the scheme if he had thought that its purpose was entirely different from that set out in the rubric. I think that hon. Members on both sides would agree that stock appreciation relief was pitched generously and administered generously to ensure that companies did not go out of business because of inflation, and the Inland Revenue was not too fussy about seeing whether what it was administering was strictly stock appreciation relief or a combination of the extraordinary tax liabilities that could arise not only out of stock appreciation but on capital gains which were not real, but which could place an extraordinary capital strain on companies. As a result, the tax take on corporation tax disappeared virtually to zero in the closing years of the period from 1976 to 1981. It brought in virtually no revenue because stock appreciation relief was generous and was doing part of its job.
In stripping out the 1965 to 1982 capital gains and, in particular, in stripping out the hyperinflation of the period from 1974 to 1981, we must have regard to the fact that we might be compensating people twice—once for what has already been done by the over-the-top element in the stock appreciation relief, which meant that companies simply did not pay corporation tax, and, secondly, in the formal structure of the rebasing provisions that we are discussing today.
Are we talking about fairness—in other words, a major effort to strip out statistically exactly what were the inflationary gain and not to tax those—something with which we would all agree—or are we talking about somehow or other restructuring the capital gains tax system so that it encourages the economy to perform better so that assets can be freely traded at a fair level and people do not get bogged down in paperwork when they are trying to run businesses and so on? Again, we would agree with that aim. However, we would not be happy with the explanations that we have heard so far, as they have jumped about from fairness to performance and from performance back to fairness. We need to know the real purpose behind this rebasing provision.

Mr. Nicholas Winterton: I hope that the hon. Member for Cardiff, West (Mr. Morgan) will forgive me if I do not follow his line of argument. However, he made one point to which I would respond as a Back Bencher on the Government side. What the Government are doing is a rough and ready way of solving the dreadful problem of inflation that plagued this country from 1965


to 1982. Some of the matters to which the hon. Gentleman drew the attention of the Committee are valid and I am sure that my right hon. Friend the Paymaster General will be responding to them positively and constructively.

Dr. Marek: Perhaps the hon. Gentleman could give us a rationale about the comparison between housing benefit and the changes in social security? The Prime Minister said that when one has reorganisation, there are gainers and losers, but in this reorganisation of capital gains tax and rebasing to 1982, there are no losers—they are all gainers.

Mr. Tim Smith: There are losers.

Dr. Marek: No, there are only gainers.

Mr. Winterton: There are occasions when it is better not to give way, and this may have been one. I made strong representations to the Government on the matter of housing benefit and social security reform because I felt that they pitched the capital limit and started the taper too low. As the House knows, my right hon. Friend the Secretary of State for Social Services promised amendments which will be introduced by regulations. That has eased the situation, although I wish that he had gone further than he has. In these social security reforms there have been gainers and losers. I agree that, under the capital gains proposals in clause 91 and schedule 7, everybody gains.

Mr. Tim Smith: No.

Mr. Winterton: Yes. Everybody gains in some way, and some more than others. That is my understanding of the situation. I shall address my remarks to one particular sector, and I hope that my right hon. Friend the Paymaster General will consider my argument and see whether it is possible for the Government to introduce some amendment at a later stage of the Bill, perhaps on Report, to meet the problems that face minority shareholders in a small private unquoted company. There is no doubt that this group of people lose out under these proposals. It is an extremely complicated matter, and generally small businesses and private companies welcome what the Government are doing. It is good news for all old established private companies which may seek a quotation on the London stock exchange at some time.
However, the capital gains provisions produce a surprising effect. If the shares of a private company are owned by a single shareholder, these capital gains are entirely free from capital gains tax. On the other hand, in a family business, where the shares have been shared out among members of the family perhaps to give—again very much in accordance with Conservative philosophy—succeeding generations a continuing interest in the development of the business, then if, for example, there were five equal shareholders, those indexed capital gains to March 1982 will effectively be taxed not at zero rate, as for a single shareholder, but at about 30 per cent. That was confirmed to me by a tax barrister who examined the legislation.
The Revenue considers that such shareholders are minority shareholders without influence, and therefore the deemed cost of their shares is reduced by about 75 per cent. That has the unfortunate effect that the retiring owners of family companies, if the Bill goes through unamended, will

be strongly discouraged from transferring their shares to their children, or indeed to others who may be working in the business.
There have been letters on the subject in the Financial Times, and I believe in other papers. A letter from a City firm of chartered accountants refers to a letter
contrasting the taxation consequences of a complete sale of a company by a single shareholder with that of a sale by five family shareholders,
which, its experts say,
highlights an important anomaly made worse by the 1988 Budget proposals.
The letter goes on to provide an even more curious explanation of what is going to happen. It says:
In fact the anomaly is even more curious. If the business had either been carried on by a partnership or by a company owned by a partnership, even with five proprietors the 31st March 1982 valuation would have been on a controlling interest basis. This follows the Inland Revenue's Statement of Practice 1/75 which includes the following paragraph.
I hope that the House will excuse me if I read it out, as I think it is important:
'Where it is necessary to ascertain the market value of a partner's share in a partnership asset for capital gains tax purposes, it will be taken as a fraction of the value of the total partnership interest in the asset without any discount for the size of his share. If, for example, a partnership owned all the issued shares in a company, the value of the interest in that holding of a partner with a one-tenth share would be one-tenth of the value of the partnership's 100% holding.'
The letter finishes with a plea:
The relevant provisions in this year's Finance Bill are to be debated
today.
It is to be hoped that an appropriate amendment will be tabled.
I could have tabled an amendment, but the matter is extremely complicated, and I believe that the Treasury needs to consider it very carefully. The anomaly existed before, but it is made worse by the changes in the Bill. I have had the privilege of discussing the matter with the Financial Secretary, in my view, all too briefly. In addition, it is my intention to submit to the Treasury my views and evidence in writing, suggesting amendments and asking for its views on those amendments, so that at a later stage of the Bill, hopefully. the Government will understand the problem and the particular difficulties that the proposals will cause to minority shareholders in private unquoted companies. I am confident that my right hon. Friend and his ministerial colleagues did not intend that to happen when they proposed these fairly radical changes in the Budget.
I end my remarks—I hope that they have been constructive—by saying that I am seeking the understanding of the Committee and, more difficult, of the Treasury. I hope that my right hon. Friend will take my remarks to heart and discuss them with the Treasury, and hopefully, at a later stage in the Bill, table amendments to remove, or at least to reduce, the anomalies, which I believe are unfair and should be rectified.

Mr. Doug Henderson: You may recall, Mr. Leadbitter, that I made my first contribution upstairs in Committee when you were in the Chair. It is a privilege for me to make my first contribution in Committee of the whole House under your chairmanship.
Conservative Members will recall that before this Government came to power political parties in this country accepted the need for a degree of progressivity in tax on income and capital.

Mr. Boswell: Will the hon. Member give way?

Mr. Henderson: Perhaps later. I have hardly begun my speech.
It is most disturbing that clause 91 is a further step towards denting any belief in progressivity. Clearly, as Conservative Members have already acknowledged during the debate, it helps the richer sections of the community.
6.15 pm
Hon. Members will recall that capital gains tax was initially introduced because of the very obvious weaknesses in estate duties. We have heard from my hon. Friend the Member for Cardiff, West (Mr. Morgan) about the debate on stock appreciation during the 1970s. The Committee will recall that that debate was about capital that was held by individual citizens. I recognise that the changes which took place in 1982 on indexation are welcome. We cannot criticise those changes six years later. They were necessary on the grounds of efficiency, so that the real value of a particular asset was assessed when it was transferred from one individual to another.
I can say to Opposition Members that, whether the issue is social justice in relation to capital gains or whether it is revenue, the Government of the day can alter the rate of tax which applies at a particular level. I accept completely that there should be indexation.
I was interested to hear the argument put forward by the hon. Member for Beaconsfield (Mr. Smith). I hope that he will not be offended, but even he—renowned as a fairly strong supporter of the Government—understands that if there is no form of indexation prior to 1982, it will be a free ride for the holders of capital during that period.
I do not think that that can he justified on any grounds. It certainly cannot be justified on the ground of social justice or of tax revenues, and we are always hearing from Conservative Members about the need to maximise revenues. I hope that Conservative Members will accept that it cannot be justified on grounds of efficiency, because the real value of the transfer of a particular asset would not be taken into account. We are talking about efficiency in the economy and the need for some people to dispense with assets that they do not need at a particular time or, when they decide to get rid of them and transfer them to others who need them for productive reasons, that that should be done through a fair system.

Mr. Boswell: I am most grateful to the hon. Gentleman for giving way. I did not wish to interrupt him earlier in his speech. I wish to raise two points. First, does he accept that, under the new basis for capital gains tax, for the first time there is a progressive system in relation to long-term gains at 25 per cent. and 40 per cent? Secondly, bearing in mind that some of the assets purchased on or before 1965 may not be realised for 50 years, is he confident that even the Inland Revenue could conduct a realistic valuation of the 1965 basis of private companies in the year 2015?

Mr. Henderson: I am grateful to the hon. Gentleman for raising those two points. I shall return to his second point later. I was going to mention it in any case.
On the first point, I agree that it is desirable that there should be some progressivity in the rate of tax that is charged. On the face of it, this is so, compared to the previous system.
The hon. Member for Daventry (Mr. Boswell) will remember that under a Labour Government capital gains tax was higher for everybody. Capital gains tax is being restored for certain sections of the community, but the hon. Member for Daventry, who has a good working knowledge of how taxation affects the farming community, will be aware that when, under the new system, the marginal rate of tax applies to capital gains, it will be easy for a male farmer with a higher income to transfer an asset to his spouse with a lower income from another source. She will then be able to claim capital gains tax at 25 per cent. In that sense, it is not progressive. The Committee upstairs will consider in more detail the principle of separate taxation. I accept that principle, but anomalies have been created that have undercut the arguments in favour of capital gains tax progressivity.
Rebasing cannot be looked at in isolation. We have to consider the background to rebasing. The fact that only one out of 100 taxpayers will be affected is a telling point that cannot be ignored. We have to consider also the changes that were made in 1986. Lifetime gifts are no longer liable to capital transfer tax. Many asset holders have been let off the tax hook.. Having already been let off the tax hook, they are now being given a free ride on the assets that they held before 1982. A tax lawyer has told me that the capital assets of families are now on a permanent tax-free merry-go-round and that some assets will have more owners than there were owners of the Rowntree share certificates during the last few weeks. That is true. Transfers will be made from one member of a family to another at the lower rate of tax, whenever that is possible.
Other background factors have to be taken into account when considering the corporate sector, whose tax liability has already been reduced, due to the reduction in the rate of corporation tax. That, too, will be let off the hook on its asset values before 1982.
The Government claim that they are tax reformers, but the impact of many of the Government's changes, including clause 91, is to dismantle taxation measures in such a way as to benefit the rich. The rich have gained dramatically. My hon. Friend the member for Edinburgh, Central (Mr. Darling) said that the effect of the proposed changes is that £55 million will be given to individuals in 1989–90 and that £235 milllion will be given to companies. The speculators of the 1970s who were out to make a fast buck by buying property are now being let off the hook by the Government, who say that they will protect them from losses that were made before 1982, by allowing their losses to be set against gains that were made after 1982. I suggest that that is to have one's Nigel cake and eat it.
The Minister said that the records that would enable another course of action to be taken do not exist. That argument is unacceptable. It bears little relationship to the way in which business is conducted. We are dealing largely with property and shares. Records of the purchase price of property are always kept. Records are also kept, at both ends, of transactions in stocks and shares. They are kept by the current holders of the shares and by the institutions that sell stocks and shares. If the argument were reversed and if it were said that anybody who held an asset before 1982 would be given an additional bonus in the 1988 Budget, provided that they could say what was the original


price of the asset, I am sure that the records would soon be found. Even small farmers would quickly find the records that would enable them to qualify for their bonus. The argument that records have not been kept is unacceptable.
I have received a letter from a gentleman who is living on £73·53 a week invalidity benefit. He has lost £8·19 a week because of the housing benefit changes. Why is there to be this free ride for the rich on the value of their assets before 1982 while this poor fellow, who fought for his country and who is now suffering for it, has lost over 10 per cent. of his real income? If he is told that he has to suffer because the economy has become more efficient and that we shall all gain from it in the longer term, he might understand the argument, even though he might not agree with it. But if he is told that all this money has been given away to the rich because property records or records of stocks and shares cannot be found, he will say that he does not believe it. I should be tempted to agree with him. We are responsible for monitoring the changes to the fiscal law. We must challenge the Government when we believe that the legislation they have introduced is unfair.

Mr. Butterfill: Does the hon. Gentleman accept that it is not always the record of the purchase price that is in question? It may be the value of the property at 5 April 1965 that is in question. If an asset were acquired before that date, one would have to provide a theoretical valuation of what that asset was worth at that time. It may be difficult to establish that value, if the asset is property. Properties around it may have been bought. If the property is in a clearance area, the surrounding properties may have been knocked down. The asset may have changed materially since 1965.
It may also be difficult to prove what the condition of the property was at that time—for example, whether it had central heating, or whether central heating was installed subsequently. It is difficult to make a theoretical valuation for property. It is even more complicated if the property is not owner-occupied. It may contain several tenants, in which case it may be necessary to look at the nature of the leases at that time and at what might have happened to those leases. It would also be necessary to consider by how much the rent and investment yields may have increased in relation to income. Those are all theoretical points, and my profession would have to make a guess about those assets in 1965. It is by no means as simple a problem as the hon. Gentleman makes out.

Mr. Henderson: I do not wish to be flippant, but I recall a professor of economics telling me that one could be Chancellor of the Exchequer with first-year university applied economics. I do not know whether that is true, but, with something less than first-year university applied economics, one could work out an approximate evaluation of assets held in 1965. It is a question of the retail prices index compared with other indices, and the hon. Gentleman knows that to be the case.
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The Minister must put forward convincing reasons why that effective handout to the rich should be made. Will he argue that the additional relief will aid business? That will be difficult to argue because, as I understand it, most assets that are clearly seen to be productive towards business are largely exempt from capital gains tax in any case. I cannot

therefore see any argument that the Minister can make out for that case, although I shall listen with interest to his reponse.
It is sometimes argued that we have to hand out money because we must make more available for investment in industry in this country. Again, it will be interesting to see whether the Minister deploys that argument, but, if there is an argument for investment, it does not matter whether it is in the public or private sector. It does not matter whether the Government build a new railway line between London and Dover or whether it is done by the private sector. In either case, it will probably cost a similar amount. Such arguments will not cut much ice with my disabled constituent who has already raised with me the question of the lack of social justice.
It is also argued that it is not worth while having an assessment before 1982 because it would cost more to assess the asset than the amount that would be raised. That argument cannot be made out, because the cost will not vary very much, whichever dates are used. My constituent will not be particularly charmed if the Minister comes forward with that argument.
The Conservative party has often said, particularly before it came to power in 1979, that it was necessary to do some things in the national interest that might be unpalatable, but, even on this occasion, it cannot clam that it is in the national interest. The Minister should admit that this is part of the handout to the Government's rich backers and supporters and that the benefit to the rest of the community is nil.
I hope that those Conservative Members who have noted the philosophical arguments that have been put forward, and other Conservative Members, such as the hon. Member for Beaconsfield, who have recognised the technical arguments, will join us in opposing clause 91.

Mr. Campbell-Savours: I shall be brief, as I have already spoken twice on the Bill. I want to address the point made quite reasonably by a number of Conservative Members about the difficulties of valuing assets for the purpose of estimating their value up to 23 years ago.
The Inland Revenue has much experience of those matters. As I understand it, it is now doing precisely that. That is how it assesses capital gains tax liability. In all my years in this place, I have never had any complaints from constituents about unreasonable treatment in the valuation of their assets. I assume that the Inland Revenue would have been involved in estimating the value of assets held between 1965 and 1982. Perhaps the hon. Member for Bournemouth, West (Mr. Butterfill) will intervene if I am wrong. If he accepts that the Inland Revenue has such experience, surely that destroys any argument that may be used about the principle of valuation.

Mr. Butterfill: The hon. Gentleman tempts me to intervene. I have certainly received many complaints about that matter and perhaps I can give him an anecdote from my experience. Only six months ago I managed to agree with the Inland Revenue the final computations in respect of a sale of shares in a company that I was running and that I sold at the end of 1976. It has taken almost 12 years to agree the valuation. That is due to the complexities that can arise in respect of private companies and properties. A whole division of the Inland Revenue deals with those


matters day after day. Those people have a high level of expertise, but the complexity of the transactions is enormous and the cost to the taxpayer great.

Mr. Campbell-Savours: The Inland Revenue may have a whole division involved in valuing such things, but I am sure that it has the necessary expertise. In eight years, no constituent has ever brought such a case to me, and I am sure that is true of many of my hon. Friends. Accountants in my constituency are keen to come to me if they want my support in making representations, and I willingly provide it wherever possible. I am sure that they would have come to me if the problem had existed.
Those matters are exaggerated because they serve the purpose of the argument. The Government may introduce the measure not only to help a small minority of people, but because they are obsessed with reducing the number of civil servants. They may believe that they can make economies in Civil Service numbers in this area when another Government of a different political persuasion might be less keen to make so-called economies.
I wish to simplify the matter for the general public who may have difficulty in following our debates. If they listen to what is being said in Committee today, they may not understand what we are talking about. I want to make it clear what we are talking about.
If, between 1965 and 1970, a person bought a painting for £100,000 and decided to sell it this year for £10 million—the last £5 million of that having accrued between 1982 and 1988—the first £5 million, which represents the increase in value between 1965 and 1982, would not be subject to tax.

Mr. Boswell: Will the hon. Gentleman tell the House how much tax has already accrued to the Exchequer under the previous regime on that notional gain which is now hypothetically released? Will he also tell us how much capital gains tax would accrue to the Exchequer under the present regime, if the person were to die possessed of that asset?

Mr. Campbell-Savours: I can only say what the Minister would say to the hon. Gentleman, although I do not have an hon. Friend to whom I can turn for a reply. If he gives me written notice of the question, I assure him that I will give him an answer when I have secured it from the Minister.
I should like to make it clear to those who are listening to our debate today that many people, although they may be few as a proportion of the population, will make millions of pounds out of the concession. They will simply not be liable to tax. That is what we object to.
My hon. Friend the Member for Cardiff, West (Mr. Morgan) spoke most ably about the problems that arose with stock relief in the late 1970s. It should be admitted that stock and appreciation relief related not only to a fixed volume of stock. In practice, people claimed relief on an increasing volume of stock over a period of years. Many people thought that an abuse of the scheme, but it was extremely difficult for the Inland Revenue to keep a check on it. One hon. Gentleman is an accountant, and I think that I once heard him talking about this matter at a meeting outside this Chamber. He might care to confirm that I am right. It could be argued that that was a windfall for much of British industry as it was able to avoid tax within the law.
Such a process led to an increased value being put on companies. If that increase were realised before 1982, it could be said to be an increase which bore no relation to increases as a result of inflation. Surely such an increase should be subject to capital gains tax.
Many people invested in assets in the hope that, one day, there would be a law to reduce liability. People invested in coins, stamps, furniture, paintings and antiques, often in the belief that what is happening today would happen. It is they who will be substantial beneficiaries. I only hope that when the Government's proposed changes are evaluated outside, the majority of people will understand that a very small number will today, as a result of this concession, gain a very large amount of money. That is happening at a time when people at the bottom of the income scale are gaining almost nothing. Indeed, they are losing.

Dr. Marek: I should like to echo what my hon. Friend the Member for Workington (Mr. Campbell-Savours) said. He encapsulated the debate in his last two sentences. A very few people will make a lot of money from the clause.
Yet again, more Opposition Members than Conservative Members have spoken. One or two Conservative Members have tried valiantly to defend the indefensible, but, by and large, the Conservative Benches have been silent and only Opposition Members have recognised the effect of the tax and been able to deploy the arguments.
The hon. Member for Beaconsfield (Mr. Smith) is muttering something. I understand that he is retained by Price Waterhouse. If he wishes to intervene, he should stand up and I shall give way to him.

Mr. Tim Smith: I am most grateful to the hon. Gentleman for giving way. He cannot have been listening carefully because, to take the example given by the hon. Member for Workington (Mr. Campbell-Savours), if a man bought a painting for £100,000 in 1965 and sold it for £550,000 in 1982—

Mr. Campbell-Savours: I said £5 million.

Mr. Smith: Before the clause was introduced, such a man would have been taxed on the whole gain, but the gain is a purely inflationary one. The rate of inflation over the relevant 17-year period was 450 per cent.

Mr. Campbell-Savours: I said £5 million.

Mr. Smith: I was taking a different example.

Mr. Campbell-Savours: The hon. Gentleman said that he was taking my example.

Mr. Smith: It is unfair that that 450 per cent. gain should be taxed at all.

Dr. Marek: The only thing that I can get out of that intervention is that there must be a lot of paintings hanging in the offices and boardrooms of Price Waterhouse.

Mr. Morgan: Price Watercolours!

Dr. Marek: Indeed. The House should reflect on the alleviation of capital gains tax and compare it with housing benefit. People on income support and those in


receipt of housing benefit do not know what will happen to them. Local authorities cannot tell them what will happen. The Government were rightly forced to make changes to their new system.
The Government announced on Budget day that CGT would be rebased on 1982. I maintain that there are only gainers from that change. Moreover, the Government left three weeks for people who pay CGT to arrange their financial affairs to their advantage. The new system came in on 6 April. That sums up the Government's philosophy. The rich—those who pay CGT—know that nothing the Government will do will upset them. Indeed, the Government will ensure that their tax charges diminish. People who depend on social security, income support or housing benefit, however, have all sorts of administrative difficulties put in their way. They do not know how much money they will have to live on next week. They have to keep guessing, but they know that money will be taken away from them each year.
The Committee has been occupied for about three hours considering the case of about one in 100 taxpayers, because that is how many pay CGT. From 1991, each individual will have a CGT allowance of £5,000. Certain married couples will benefit to the tune of £50 million in the coming financial year. The tax-free allowance remains at £5,000, but that should be compared with the single allowance of £2,605. Where is the morality there?

Mr. Boswell: Does the hon. Gentleman agree that companies also pay capital gains? They have shareholders—approximately 9 million of them—all of whom are potential capital gains tax payers.

Dr. Marek: I was talking about individuals who pay capital gains on unearned income. There is no fiscal equality in a single allowance for earned income, which involves the loss of leisure time, of £2,605 when the allowance for CGT, which involves no work at all, is £5,000.

Mr. Brooke: It would be helpful if the hon. Gentleman would clear up one matter regarding which we were left in doubt last night. I refer to the Opposition's policy on the capital gains exemption for married couples. The two speeches made by Opposition spokesmen lead in conflicting directions. Is the hon. Gentleman proposing that the exemption for couples should not exist or that there should be only one exemption for everyone?

Dr. Marek: I will not answer that question now, for one good reason. We are here debating a Finance Bill that has not been introduced by the Opposition. I shall be delighted to answer the hon. Gentleman's question in due course, when we are seated on the Government Benches. We are discussing a Finance Bill introduced by the present Conservative Administration—it is their seventh or eighth Bill—and the present proposals before the Committee will give a very few people a very large amount of money. There is no doubt about that.
As to exemption for capital gains between married people, that is a subject of which the ordinary man or women in the street has no comprehension. They have no idea what it is about, and they wonder why the House of Commons spends three or four hours discussing it. The ordinary married couple do not pay capital gains tax and

have not even heard of it. Yet the Paymaster General was trying to create a rift over what was said last night by my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) and by my hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) where no rift exists. If the right hon. Gentleman will read last night's debate, he will see that the Opposition's case is clear. We oppose massive handouts to wealthy people who do not work for that wealth, and who will enjoy even more wealth as a result of the Bill.

Mr. Brooke: Last night, the two Opposition Members to whom the hon. Gentleman referred gave conflicting interpretations, and he is not prepared to say which of them is correct.

Dr. Marek: I have it directly from the words of my hon. Friends the Members for Newcastle upon Tyne, East and for Islington, South and Finsbury. The comment of the right hon. Gentleman is clearly untrue and there is no rift among the Opposition in expressing its feelings about this iniquitous measure, which creates more riches for those who are already rich.
I return to the subject of the way in which wealthy married couples will benefit from these measures. As each spouse will have their own £5,000 allowance, they will not be able, as they have in the past, to aggregate their gains and losses. However, what is to prevent one spouse from transferring his or her losses by a transfer of assets at nil loss or nil profit to the other spouse, in order to set that loss against the other spouse's gains? I hope that the Paymaster General will pay careful attention to that point, which was raised by my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson). It clearly reveals a flagrant loophole established by the Government in order that wealthy people may evade capital gains tax. Will the Paymaster General close that loophole? Is there to be wide interpretation of artificial transfers? That loophole clearly exists and something should be done about it.

Mr. Butterfill: Does the hon. Gentleman include in his definition of the wealthy the sons and daughters of people who may have purchased their council houses and bequeathed them to their children? Such beneficiaries may be left with a few thousand pounds, which they choose to invest in stocks and shares—there are some 9 million shareholders in this country. Are they among the "wealthy" whom the hon. Gentleman wants to tax? Will he discriminate against wives and husbands in that way? Many people who might otherwise be Labour voters may wish to know the answers to those questions.

Dr. Marek: There is a simple answer to the hon. Gentleman's submissions, and it is no. I do not need to detain the Committee any further on that point.

Mr. Butterfill: Oh!

Dr. Marek: The answer is clear—it is, no. The hon. Gentleman asked me whether I considered such people to be wealthy. My answer is no, and that ought to be the end of the matter.
I shall now describe to the Committee some of the actions which the Government have taken in relation to the old capital transfer tax, which is now renamed the inheritance tax. I may say, first, that accountancy practices have benefited greatly from the last few years of the Government's various Finance Bills. I am sure that the


hon. Member for Beaconsfield will agree. Those firms have paid high salaries to attract staff from the Inland Revenue. I do not know of any particular firm which has done that, but I know that many firms in the aggregate have done so. As a result, many people have left the Inland Revenue, so impoverishing the compliance with tax collection that the Inland Revenue has been able to achieve—particularly in respect of capital gains tax. That is in spite of having lower and lower tax rates, according to the Government.
I am not criticising accountancy firms for doing anything illegal, but the work created for them by the Government is in addition to privatisation issues and public sector business. Therefore, those firms are now extremely profitable. It is interesting to ask which firm is sequestering the assets of the National Union of Seamen and how much that firm is getting out of it. The truth is that capital gains tax is not getting easier as the years go by simply because rates are getting lower or because there will not be any problems as a result of rebasing to 1982. In fact, accountancy firms—I do not object to this—will continue to place great emphasis on devising for their clients the best methods of adjusting their tax affairs.
The answer to it all is not to keep on the track which the Government are following, of giving handouts to the rich, but to try to police the existing tax laws effectively. The Opposition believe that that policing is something to which the Government have not given a great deal of attention. Is it, for example, the Chancellor of the Exchequer's mission in life to provide a living to accountancy firms—[HON. MEMBERS: "Yes!"] No, that should not be the case, but I am glad at last to have the agreement of some Conservative Members. Unfortunately, because of the way in which the Government are formulating their policies, taxes are more and more difficult to apply, with the result that even more livings are to be made by those in accountancy firms working for their clients in avoiding as much capital gains tax as possible.
The provision for rebasing to 1982 is most iniquitous. The point has been made that inflation was 450 per cent. between the time when the tax was introduced in the 1960s until 1982. However, there were many real gains made over and above any inflationary gains. My hon. Friend the Member for Cardiff, West (Mr. Morgan) made that point and described some of the gross anomalies which exist. One action the Government could have taken was not to make any change whatsoever.
It is the job of Inland Revenue to negotiate with those who wish to make gains by selling their assets at a particular time, in order to achieve a satisfactory valuation. I am sorry to hear that the case of the hon. Member for Bournemouth, West (Mr. Butterfill), took 12 years to resolve but that is not a criticism of the law—it is a criticism of the way in which the law is interpreted by accountants and by the Inland Revenue. Other ways can be found of ensuring that valuations are arrived at much sooner.
If the Government intended to do anything about capital gains tax before 1982, they should not have swept it away. I reiterate that the Government are giving away a lot of money to a very few people.
I make now my point about the inheritance tax. When that concession is added to the gifts that will be made to people who pass on their estates under the inheritance tax we shall be discussing next, to the cut in the top rate of income tax from 60 per cent. to 40 per cent., to the disaggregation of married couples' incomes—and none of

us on the Opposition Benches are against separate taxation for married couples—and to the windfall gains that will be made by wealthy married couples as a result of the proposals, the result is a most iniquitous, thoroughly immoral Budget. Clause 91 is one of its immoral clauses, and we shall vote against it.

[MISS BETTY BOOTHROYD in the Chair]

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Mr. Brooke: This has been an excellent and enjoyable debate—

Mr. Campbell-Savours: The right hon. Gentleman has been well primed.

Mr. Brooke: As the hon. Gentleman says, I am looking forward to replying to it.
The hon. Member for Newcastle upon Tyne, East (Mr. Brown) raised a number of questions about the consequences and purposes of the clause. It is the clear intention of the clause to unlock gains which will he taxed at higher rates. The hon. Member for Edinburgh, Central (Mr. Darling) quoted the costs in terms of relief for both individuals and companies in the coming year. He did riot quote the £65 million in 1989–90 that we shall secure as a result of the rate change in capital gains tax, or indeed the £15 million that we shall secure as a result of the change to the annual exemption.
The beneficiaries—as the hon. Gentleman said in a side wind—will also be the life insurance companies and the holders of policies in those companies. The hon. Gentleman made much play of the gain that will be made by property companies—and, indeed, the gains of other companies—but, as has been said, those will be taxes in the hands of the shareholders. The hon. Member for Wrexham (Dr. Marek) dismissed that, as though shareholdings were in some way disembodied, and that may well explain what has lain behind much Socialist policy in the past. The fact remains that those gains will be taxed when the individual shareholders realise their own gains.
The hon. Member for Newcastle upon Tyne, East mentioned those who might gain. But for higher rate taxpayers generally, the overall capital gains tax reform is likely to be broadly revenue-neutral. My hon. Friend the Member for Macclesfield (Mr. Winterton) implied that there would be no losers. Alas, the role of the dodo in "Alice's Adventures in Wonderland" cannot be played in terms of these clauses, because unquestionably there will be losers.
I was asked whether I was suggesting that all gains were inflationary. Of course the Government are not saying that, but we cannot return to 1965, for the reasons that we have adduced during the debate.

Mr. Nicholas Brown: I am grateful to the Paymaster General for giving way, because this question is at the heart of our objections. We accept that in the 1970s inflation created some anomalies, and in an intervention I said that we agreed with the Government that the matter must be dealt with. Surely, however, the Government do not contend that every potential capital gain created in the 1970s was caused by inflation alone. If that is not their contention, what reason can the Government give to the Committee for exempting everything prior to 1982 from tax?

Mr. Brooke: I do not think that the hon. Gentleman heard what I said a moment ago. I agreed that all gains were not inflationary. What I was saying—and I shall say it again—was that the information does not exist to enable us to take indexation back to 1965, which by implication would be the solution that the hon. Gentleman suggests.

Mr. Darling: Is the right hon. Gentleman saying that no information exists for before 1982? Surely, while it is perfectly possible that information concerning events in 1965 is more difficult to come by, information for 1981, 1979 or 1977 could readily be acquired. If the right hon. Gentleman concedes the principle that there are pre-1982 non-inflationary gains, he could at least have made some attempt to go further back. The hon. Member for Beaconsfield (Mr. Smith) agrees.

Mr. Brooke: I do not know what makes the hon. Gentleman believe that all details in a particular year would readily be available. Some details in each of the years going back to 1965 would be difficult to secure.

Mr. Morgan: The right hon. Gentleman is now adducing a new principle—that there should be no taxation without information, and that taxation is possible only where records exist. Surely that is an incentive for the destruction of records, and the proposal becomes impracticable. Is the right hon. Gentleman really saying that the main motive behind the legislation is the absence of records?

Mr. Brooke: The hon. Gentleman may well have given me a soubriquet with which I shall go down in history. Our concern, however, is the particular detail that is required to reopen questions back to 1965 in terms of indexation when the information is not universally available. The point that I have made from the beginning of the debate is that indexing back to 1965 is not a feasible proposition because of the lack of available information, and that is the position on which I shall stand.

Several Hon. Members: rose—

Mr. Brooke: I should like to make a little progress. I shall be on my feet for some time to come.
The hon. Member for Wrexham declined to state the Opposition's position on exemption. Conflicting opinions were given by his hon. Friends—

Mr. Nicholas Brown: rose—

Mr. Brooke: I am responding to the hon. Member for Wrexham. He asked me whether I had read the report of the debate. I have had the advantage of reading it, whereas all that he did was to consult his hon. Friends the Members for Newcastle upon Tyne, East and for Islington, South and Finsbury (Mr. Smith). A question remains which the hon. Member for Wrexham noticeably declined to answer. We do not know whether that was because he did not know the answer, or because the Opposition have not yet decided. That question is whether the exemption will be lower for everyone, or whether there will be no exemption for married couples.
My hon. Friend the Member for Daventry (Mr. Boswell) raised the subject of milk quotas. Two possibilities may arise. Milk quotas are assets that did not exist in 1982: the European Community rules under which they exist were introduced later.

Mr. Nicholas Brown: The right hon. Gentleman suggests that there is some confusion, at least in his mind, about Opposition policy on capital gains tax and disaggregation. I think that it is a bit wide of the clause, but if he were to explain precisely what his misunderstanding is, we could deal with it. So far he has alleged inconsistency, but he has not told the House what it is. I suspect that the inconsistency is in his own mind alone, because no one else has picked it up.

Mr. Brooke: I am surprised that the hon. Gentleman should wish us to explore that further. He will remember that, in the context of the individual's £5,000 exemption, he accused the Government of
not arranging the allowances so that the change is neutral in terms of the public purse.
He may wish later to explain what he meant by that, but it was a statement.
The hon. Member for Islington, South and Finsbury also said:
If the Government removed the £5,000 exemption allowance from capital gains tax, we would be entirely and immediately in favour of independent taxation of capital gains."—[Official Report, 9 May 1988; Vol. 133, c. 88–111.]
In those circumstances it is reasonable for me to ask whether what they are proposing is no exemption for couples, or a lower exemption for everyone. If they are intending to remove the exemption, that would bring 9 million shareholders under the capital gains tax regime, which require universal tax returns for 30 million people and involve the employment of a further 1,000 to 2,000 Inland Revenue staff.

Mr. Nicholas Brown: There is no inconsistency in that. We are putting proposals to the Government. My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) stated something that would be overwhelmingly acceptable and I stated something that I should have thought the Minister would see as being closer to his position. We were not setting out the Labour party's position; we were stating things that the Government should have considered but did not.

Mr. Brooke: I am conscious of the difficulty that the Opposition are having in terms of determining their policy on anything. However, to discuss it in Committee of the whole House during debates on the Finance (No. 2) Bill, with different hon. Members on the Opposition Front Bench putting forward a series of different proposals in order to get a reaction from the Government, seems to be an extraordinary way for Her Majesty's loyal Opposition to go about deciding their policy. It is reasonable for us to seek to know what the policy is, because 9 million shareholders in this country are affected by it.
I shall return to the subject of milk quotas. There are two possibilities. The first, which will more frequently happen, is where a milk quota is disposed of at the same time as the associated farm land. Where that is so, the full benefit of rebasing will, where appropriate, already be available under the Bill. That will be done through the computation of the gain on the farm land itself. Splitting it between the land and the quota will achieve nothing extra.
The second—a more rare occurrence—is where the quota is sold separately from the land. Under Ministry of Agriculture, Fisheries and Food arrangements, the Ministry may buy back quota from a dairy farmer under what is known as the outgoers scheme. In those more


exceptional circumstances, quota may be disposed of independently of the land. The details are complex, but in some circumstances the payment by the Ministry to the outgoing farmer may take the form of income, in which case there is no question of capital gains tax. In other circumstances, the payment may take the form of capital and a gain may arise. However, that gain is not attributable to any asset that the taxpayer held in 1982. The quota did not exist then and it is an asset separate and entirely distinguishable from the farm land, as is clear from the fact that it can be sold back to the Ministry independently of the land. In giving that answer I am also responding to the hon. Member for Caernarfon (Mr. Wigley).
My hon. Friend the Member for Daventry also raised the question of stock dividends. There will be complications when shares issued as a stock dividend are sold if capital gains tax is then payable. However, those complications will not arise for the vast majority of small investors, who will be below the annual exemption.
The hon. Member for Edinburgh, Central asked why we had settled on 1982 for rebasing and not a different year. The reason was, as my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) said, that market values at 31 March 1982 are already built into the system for indexation. If the hon. Gentleman is asking why the year was fixed at 1982 and not 1979, I should say that that would be a perverse suggestion since there would be a cost to the Revenue in the relief if it had been taken back to the earlier date.

Mr. Darling: The right hon. Gentleman seems to be having a great deal of difficulty with the year 1982. Will he explain why 1982 was chosen? There may well have been a cost, but the Government could have done anything they wanted on the matter of indexation. To return to the point made earlier, why is it that before 31 March 1982 information suddenly becomes patchy, whereas after that there is as much information as the Revenue needs?

Mr. Brooke: I remind the hon. Gentleman that 1982 was chosen because the decision was taken in the 1982 Budget. The hon. Gentleman will recall an exchange between his hon. Friend the Member for Newcastle upon Tyne, East and myself earlier on the subject of the Labour party amendment which suggested the date 1974. That was also a wholly arbitrary date. The hon. Gentleman will recall that it was withdrawn without debate.
7.15 pm
My hon. Friend the Member for Beaconsfield (Mr. Smith) supported the hon. Member for Newcastle upon Tyne, East's point about the 30 per cent. flat rate. He made a most helpful contribution to that subject.
The hon. Member for Caernarfon came back to me on the question of valuation. The hon. Gentleman appears to assume that indexation is computed by reference to disposal value. That is not the case. It is normally computed, under existing law, on market values at 1982. That is the same figure as will be needed for rebasing. The Inland Revenue is experienced in valuing land and other assets at 1982 market values. In spite of the problem in valuation mentioned by the hon. Member for Caernarfon, I noticed that the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) appeared to be prepared to value anything.
I am grateful to my hon. Friend the Member for Wanstead and Woodford for his appreciation of the move by the Government on the subject of the election.
The hon. Member for Gateshead, East (Ms. Quin) asked about real versus inflationary profits during the period concerned. I have already spoken about that. In terms of the behaviour of individual shares on the stock market, it would not be practicable to give indexation relief back to 1965. On average, rebasing is no more generous than indexation back to 1965 would be. The hon. Lady also asked about migration. I am glad to say that under the present Government, with lower income tax rates, the number of those leaving the country is likely to be reduced.
The hon. Member for Cardiff, West (Mr. Morgan), given the historical tendency of the Labour party to argue that our economic success—

Mr. Campbell-Savours: rose—

Mr. Brooke: I shall come to the speech made by the hon. Member for Workington (Mr. Campbell-Savours).
The hon. Member for Cardiff, West attributed the lack of success in the economy during the previous Labour Government to the problems of OPEC and the oil industry. However, the present Opposition attribute all our success to that, despite the fact that the contribution of the oil industry to the revenues of the Treasury is now small, especially after the fall in the oil price.
My hon. Friend the Member for Macclesfield asked about the valuation of shares in 1982 in private companies. It has been suggested that rebasing has an unfair effect where minority shareholders in a private company sell the company jointly. In those circumstances, the sale price will reflect the control premium, whereas the 1982 valuation will be of individual minority shareholdings. This is riot really a rebasing point. It concerns how one values shares at a time when there is no sale. The only basis one can use is open market value—the amount that the particular shareholding would have fetched in the market had it been sold. If people have a minority holding, the market will not value it at the premium that would attach to a controlling or 100 per cent. shareholding. Frequently, when people come to sell, they will sell a simple minority holding and the price they receive will reflect that.
I shall study closely what my hon. Friend said in terms of the letter relating to controlling partnerships. If a partnership does own all the shares in a company, it does so as a single entity, no matter how many partners there are. When it comes to selling the shares, the partnership will act as a single investor. The valuation of the shareholding in the market and for tax will be on a controlling holding basis and, as with other assets, each partner will be treated as having a proportionate interest in that value.
The hon. Member for Newcastle upon Tyne, North came back to the question about records. It seems that there will be a continuing gulf between the Government and the Opposition on whether the records are available. It remains our contention that they are not.
The hon. Member for Workington, who replied to a question put to me by one of my hon. Friends by saying that he would consult me and write to my hon. Friend later, was, I thought, being unduly modest, as earlier in the debate he knew all the answers to questions put to me.
The hon. Members for Newcastle upon Tyne, North and for Wrexham referred to the tax on transfers between husbands and wives. We have established ourselves as the party of the family through our proposals relating to independent taxation. The Opposition will be the party of the anti-family, if they are going to introduce taxation on transactions between husbands and wives.
Even after all the changes to capital gains tax since 1979, the yield on disposals this year by individuals and trusts will be about three times the equivalent for 1978–79, which is a real increase of more than 50 per cent. Most of the cost of rebasing lies with companies. Even so, the yield on disposals by companies this year is seven times greater in real terms than the yield in 1978–79.
I rest my case on a final verdict about these proposals. The Institute for Fiscal Studies set up a working party on capital taxes, which in February produced an interim report on reforming capital gains tax. While considering the options for reform open to the Chancellor, the institute happened on what was effectively the Budget package—1982 rebasing, charging gains as the marginal slice of income, a basic rate of 25 per cent. and a single higher rate of 40 per cent. It commented:
Clearly such a scheme has much to commend it. It would also seem to be the logical counterpart in the personal sector to the reform made in the 1987 Budget in the corporate sector … The main objection … is that the key problem … with CGT is left unremedied, namely its complexity. Still, it cannot be a valid objection to a sensible reform package that it is not perfect.
I commend the proposals to the House.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 262, Noes 194.

Division No. 293]
[7.21 pm


AYES


Adley, Robert
Brandon-Bravo, Martin


Aitken, Jonathan
Brazier, Julian


Alison, Rt Hon Michael
Bright, Graham


Allason, Rupert
Brittan, Rt Hon Leon


Alton, David
Brooke, Rt Hon Peter


Amess, David
Brown, Michael (Brigg &amp; Cl't's)


Amos, Alan
Browne, John (Winchester)


Arbuthnot, James
Bruce, Ian (Dorset South)


Arnold, Tom (Hazel Grove)
Bruce, Malcolm (Gordon)


Aspinwall, Jack
Buchanan-Smith, Rt Hon Alick


Atkins, Robert
Burt, Alistair


Atkinson, David
Butcher, John


Baker, Nicholas (Dorset N)
Butler, Chris


Baldry, Tony
Butterfill, John


Banks, Robert (Harrogate)
Campbell, Menzies (Fife NE)


Batiste, Spencer
Carlile, Alex (Mont'g)


Beaumont-Dark, Anthony
Carlisle, John, (Luton N)


Beith, A. J.
Carlisle, Kenneth (Lincoln)


Bellingham, Henry
Carrington, Matthew


Bennett, Nicholas (Pembroke)
Carttiss, Michael


Benyon, W.
Cash, William


Bevan, David Gilroy
Chapman, Sydney


Biffen, Rt Hon John
Clark, Dr Michael (Rochford)


Blackburn, Dr John G.
Clark, Sir W. (Croydon S)


Blaker, Rt Hon Sir Peter
Clarke, Rt Hon K. (Rushcliffe)


Bonsor, Sir Nicholas
Conway, Derek


Boscawen, Hon Robert
Coombs, Anthony (Wyre F'rest)


Boswell, Tim
Coombs, Simon (Swindon)


Bottomley, Peter
Couchman, James


Bottomley, Mrs Virginia
Cran, James


Bowden, A (Brighton K'pto'n)
Critchley, Julian


Bowis, John
Curry, David


Boyson, Rt Hon Dr Sir Rhodes
Davies, Q. (Stamf'd &amp; Spald'g)


Braine, Rt Hon Sir Bernard
Davis, David (Boothferry)





Day, Stephen
Knowles, Michael


Devlin, Tim
Knox, David


Dickens, Geoffrey
Lamont, Rt Hon Norman


Douglas-Hamilton, Lord James
Lang, Ian


Dover, Den
Latham, Michael


Dunn, Bob
Lawrence, Ivan


Durant, Tony
Lee, John (Pendle)


Fallon, Michael
Lester, Jim (Broxtowe)


Farr, Sir John
Lightbown, David


Favell, Tony
Lilley, Peter


Fearn, Ronald
Lloyd, Sir Ian (Havant)


Fenner, Dame Peggy
Lloyd, Peter (Fareham)


Field, Barry (Isle of Wight)
Lord, Michael


Finsberg, Sir Geoffrey
Lyell, Sir Nicholas


Forman, Nigel
Macfarlane, Sir Neil


Forth, Eric
Maclean, David


Fox, Sir Marcus
McLoughlin, Patrick


Franks, Cecil
McNair-Wilson, M. (Newbury)


Freeman, Roger
McNair-Wilson, P. (New Forest)


French, Douglas
Madel, David


Fry, Peter
Major, Rt Hon John


Gardiner, George
Malins, Humfrey


Garel-Jones, Tristan
Mans, Keith


Gill, Christopher
Maples, John


Goodhart, Sir Philip
Marland, Paul


Goodlad, Alastair
Marshall, John (Hendon S)


Goodson-Wickes, Dr Charles
Marshall, Michael (Arundel)


Gorman, Mrs Teresa
Martin, David (Portsmouth S)


Gow, Ian
Mates, Michael


Gower, Sir Raymond
Maude, Hon Francis


Gregory, Conal
Mawhinney, Dr Brian


Griffiths, Sir Eldon (Bury St E')
Maxwell-Hyslop, Robin


Griffiths, Peter (Portsmouth N)
Mayhew, Rt Hon Sir Patrick


Grist, Ian
Michie, Mrs Ray (Arg'l &amp; Bute)


Ground, Patrick
Miller, Hal


Grylls, Michael
Mills, lain


Gummer, Rt Hon John Selwyn
Mitchell, Andrew (Gedling)


Hamilton, Hon Archie (Epsom)
Mitchell, David (Hants NW)


Hampson, Dr Keith
Moate, Roger


Hannam, John
Montgomery, Sir Fergus


Hargreaves, A. (B'ham H'll Gr')
Morrison, Hon Sir Charles


Hargreaves, Ken (Hyndburn)
Morrison, Hon P (Chester)


Haselhurst, Alan
Moss, Malcolm


Hawkins, Christopher
Mudd, David


Hayes, Jerry
Neale, Gerrard


Hayhoe, Rt Hon Sir Barney
Nelson, Anthony


Hayward, Robert
Neubert, Michael


Heathcoat-Amory, David
Nicholls, Patrick


Hicks, Robert (Cornwall SE)
Nicholson, David (Taunton)


Higgins, Rt Hon Terence L.
Nicholson, Emma (Devon West)


Hill, James
Onslow, Rt Hon Cranley


Hind, Kenneth
Oppenheim, Phillip


Hogg, Hon Douglas (Gr'th'm)
Page, Richard


Holt, Richard
Paice, James


Howard, Michael
Patnick, Irvine


Howarth, Alan (Strat'd-on-A)
Patten, John (Oxford W)


Howarth, G. (Cannock &amp; B'wd)
Pattie, Rt Hon Sir Geoffrey


Howell, Rt Hon David (G'dford)
Pawsey, James


Hughes, Robert G. (Harrow W)
Porter, Barry (Wirral S)


Hunt, David (Wirral W)
Porter, David (Waveney)


Hunter, Andrew
Portillo, Michael


Irvine, Michael
Price, Sir David


Irving, Charles
Raffan, Keith


Jack, Michael
Redwood, John


Jackson, Robert
Renton, Tim


Janman, Tim
Rhodes James, Robert


Jessel, Toby
Riddick, Graham


Johnson Smith, Sir Geoffrey
Ridley, Rt Hon Nicholas


Jones, Gwilym (Cardiff N)
Ridsdale, Sir Julian


Jones, Robert B (Herts W)
Roberts, Wyn (Conwy)


Jopling, Rt Hon Michael
Roe, Mrs Marion


Kellett-Bowman, Dame Elaine
Rossi, Sir Hugh


Kennedy, Charles
Rost, Peter


Key, Robert
Rowe, Andrew


King, Roger (B'ham N'thfield)
Rumbold, Mrs Angela


Kirkhope, Timothy
Ryder, Richard


Kirkwood, Archy
Sayeed, Jonathan


Knapman, Roger
Shaw, David (Dover)


Knight, Greg (Derby North)
Shaw, Sir Michael (Scarb')


Knight, Dame Jill (Edgbaston)
Shephard, Mrs G. (Norfolk SW)






Shepherd, Colin (Hereford)
Thurnham, Peter


Shepherd, Richard (Aldridge)
Townend, John (Bridlington)


Shersby, Michael
Twinn, Dr Ian


Sims, Roger
Vaughan, Sir Gerard


Smith, Sir Dudley (Warwick)
Waddington, Rt Hon David


Smith, Tim (Beaconsfield)
Wallace, James


Speller, Tony
Waller, Gary


Spicer, Sir Jim (Dorset W)
Walters, Dennis


Spicer, Michael (S Worcs)
Ward, John


Squire, Robin
Warden, Gareth (Gower)


Stern, Michael
Widdecombe, Ann


Stewart, Allan (Eastwood)
Wiggin, Jerry


Stewart, Andy (Sherwood)
Winterton, Mrs Ann


Stradling Thomas, Sir John
Winterton, Nicholas


Taylor, Ian (Esher)
Yeo, Tim


Taylor, Matthew (Truro)



Thompson, D. (Calder Valley)
Tellers for the Ayes:


Thompson, Patrick (Norwich N)
Mr. Mark Lennox-Boyd and


Thorne, Neil
Mr. Stephen Dorrell.



NOES


Abbott. Ms Diane
Faulds, Andrew


Adams, Allen (Paisley N)
Field, Frank (Birkenhead)


Allen, Graham
Fisher, Mark


Anderson, Donald
Flynn, Paul


Ashton, Joe
Foot, Rt Hon Michael


Banks, Tony (Newham NW)
Foster, Derek


Barnes, Harry (Derbyshire NE)
Foulkes, George


Barron, Kevin
Fraser, John


Battle, John
Fyfe, Maria


Beckett, Margaret
Galbraith, Sam


Bell, Stuart
Galloway, George


Benn, Rt Hon Tony
Garrett, John (Norwich South)


Bennett, A. F. (D'nt'n &amp; R'dish)
Garrett, Ted (Wallsend)


Bermingham, Gerald
George, Bruce


Bidwell, Sydney
Gilbert, Rt Hon Dr John


Blair, Tony
Golding, Mrs Llin


Blunkett, David
Gordon, Mildred


Boateng, Paul
Gould, Bryan


Boyes, Roland
Graham, Thomas


Bradley, Keith
Griffiths, Nigel (Edinburgh S)


Bray, Dr Jeremy
Griffiths, Win (Bridgend)


Brown, Gordon (D'mline E)
Grocott, Bruce


Brown, Nicholas (Newcastle E)
Hardy, Peter


Buchan, Norman
Harman, Ms Harriet


Buckley, George J.
Hattersley, Rt Hon Roy


Caborn, Richard
Henderson, Doug


Callaghan, Jim
Hinchliffe, David


Campbell, Ron (Blyth Valley)
Hogg, N. (C'nauld &amp; Kilsyth)


Campbell-Savours, D. N.
Holland, Stuart


Canavan, Dennis
Home Robertson, John


Clark, Dr David (S Shields)
Howarth, George (Knowsley N)


Clarke, Tom (Monklands W)
Howell, Rt Hon D. (S'heath)


Clay, Bob
Hoyle, Doug


Clwyd, Mrs Ann
Hughes, John (Coventry NE)


Cohen, Harry
Hughes, Robert (Aberdeen N)


Coleman, Donald
Hughes, Roy (Newport E)


Cook, Robin (Livingston)
Hughes, Sean (Knowsley S)


Corbett, Robin
Illsley, Eric


Corbyn, Jeremy
Ingram, Adam


Cousins, Jim
Janner, Greville


Cox, Tom
Jones, Barry (Alyn &amp; Deeside)


Cryer, Bob
Jones, Martyn (Clwyd S W)


Cummings, John
Lambie, David


Cunliffe, Lawrence
Lamond, James


Cunningham, Dr John
Lestor, Joan (Eccles)


Darling, Alistair
Lewis, Terry


Davies, Rt Hon Denzil (Llanelli)
Litherland, Robert


Davies, Ron (Caerphilly)
Livingstone, Ken


Davis, Terry (B'ham Hodge H'l)
Lloyd, Tony (Stretford)


Dixon, Don
Lofthouse, Geoffrey


Dobson, Frank
Loyden, Eddie


Doran, Frank
McAllion, John


Douglas, Dick
McAvoy, Thomas


Dunnachie, Jimmy
Macdonald, Calum A.


Eadie, Alexander
McFall, John


Eastham, Ken
McKay, Allen (Barnsley West)


Evans, John (St Helens N)
McKelvey, William


Ewing, Harry (Falkirk E)
McLeish, Henry


Fatchett, Derek
McNamara, Kevin





McTaggart, Bob
Roberts, Allan (Bootle)


McWilliam, John
Robertson, George


Madden, Max
Rogers, Allan


Mahon, Mrs Alice
Rooker, Jeff


Marek, Dr John
Ross, Ernie (Dundee W)


Marshall, Jim (Leicester S)
Rowlands, Ted


Martin, Michael J. (Springburn)
Ruddock, Joan


Martlew, Eric
Salmond, Alex


Maxton, John
Sedgemore, Brian


Meacher, Michael
Sheerman, Barry


Meale, Alan
Sheldon, Rt Hon Robert


Michael, Alun
Shore, Rt Hon Peter


Michie, Bill (Sheffield Heeley)
Skinner, Dennis


Millan, Rt Hon Bruce
Smith, Andrew (Oxford E)


Mitchell, Austin (G't Grimsby)
Smith, C. (Isl'ton &amp; F'bury)


Moonie, Dr Lewis
Smith, Rt Hon J. (Monk'ds E)


Morgan, Rhodri
Snape, Peter


Morley, Elliott
Soley, Clive


Morris, Rt Hon A. (W'shawe)
Spearing, Nigel


Mowlam, Marjorie
Stott, Roger


Mullin, Chris
Strang, Gavin


Murphy, Paul
Straw, Jack


Nellist, Dave
Taylor, Mrs Ann (Dewsbury)


O'Brien, William
Thomas, Dr Dafydd Elis


O'Neill, Martin
Turner, Dennis


Orme, Rt Hon Stanley
Wall, Pat


Parry, Robert
Warden, Gareth (Gower)


Patchett, Terry
Wareing, Robert N.


Pendry, Tom
Welsh, Andrew (Angus E)


Pike, Peter L.
Welsh, Michael (Doncaster N)


Powell, Ray (Ogmore)
Wigley, Dafydd


Prescott, John
Williams, Rt Hon Alan


Primarolo, Dawn
Williams, Alan W. (Carm'then)


Quin, Ms Joyce
Winnick, David


Radice, Giles
Wise, Mrs Audrey


Randall, Stuart



Redmond, Martin
Tellers for the Noes:


Rees, Rt Hon Merlyn
Mr. Frank Haynes and


Reid, Dr John
Mr. Frank Cook.


Richardson, Jo

Question accordingly agreed to.

Clause ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 127 ordered to stand part of the Bill.

Clause 128

GIFTS TO POLITICAL PARTIES

Question proposed, That the clause stand part of the Bill.

Dr. Marek: On a point of order, Miss Boothroyd. I was under the impression that we were going to discuss clause 127. In the general hubbub and melee of hon. Members exiting from the Chamber, it appears that the Economic Secretary to the Treasury, who told me that he would take four minutes to open the debate on clause 127, did not catch your eye. I wonder whether he could raise a further point of order on this matter.

The Second Deputy Chairman of Ways and Means (Miss Betty Boothroyd): I am very understanding about and sympathetic to the hon. Member's point of order, but I think that my voice is very clear. It was quiet in the Chamber when I put the Question, and there was no objection to it. Clause 127 has been agreed to.

The Economic Secretary to the Treasury (Mr. Peter Lilley): Further to the point of order, Miss Boothroyd. Is it correct to say that clause 127 could have been dealt with even if it was not moved?

The Second Deputy Chairman: I put the Question on the clause. I looked towards the Minister, who did not move.


I then looked towards the Opposition Front Bench and waited for an hon. Member to respond. There was no move to speak. The Question on the clause has been put and the clause has been accepted. If hon. Members on the Government Front Bench do not rise when the Chairman looks their way, there is nothing that the Chair can do about it. Clause 127 has been passed. We are dealing with clause 128. Does the hon. Member for Wrexham (Dr. Marek) wish to speak on clause 128?

Dr. Marek: Further to the point of order, Miss Boothroyd. We need an explanation from the hon. Member for Morecambe and Lunesdale (Mr. Lennox-Boyd), who was trying to get the Economic Secretary not to rise. I certainly saw the hon. Gentleman do that.

The Second Deputy Chairman: If an hon. Member tries to get another hon. Member to remain seated, that has nothing to do with the Chair. The Question on clause 127 has been put. There was an opportunity for Ministers to rise. No one did. Clause 127 has been accepted. We are now dealing with clause 128.

Mr. Calum Macdonald: Further to the point of order, Miss Boothroyd. I do not know whether it is appropriate for Back Benchers to oppose a clause. I said no, with some hesitancy because I was looking at the Opposition Front Bench. I suppose that I said no with my normal accent, which people say is very soft-spoken.

The Second Deputy Chairman: Any hon. Member can oppose a clause. I have perfect hearing. I am not sitting in the upper Chair which has wings that prevent my hearing. I heard no opposition to the clause.

Mr. Lilley: Further to that point of order, Miss Boothroyd. May I make it clear that I did not want to deprive the Opposition of the opportunity to have a debate. Is it possible within the rules of the House of Commons for us to interpret broadly the meaning of clause 128, so that we can cover the topics in clause 127, which are essentially the same, since they involve inheritance tax? Perhaps we can do that, if it is agreeable to the Opposition.

The Second Deputy Chairman: The hon. Member has a sympathetic way of putting things to me. I think that that course would be very agreeable.

Dr. Marek: I thank the Economic Secretary to the Treasury, although I suspect that the real culprit is the hon. Member for Morecambe and Lunesdale, who never says anything in the Chamber. I unreservedly thank the Economic Secretary for suggesting that course and I thank you, Miss Boothroyd, for accepting the Economic Secretary's suggestion that we have a wide debate. Of course, we shall not be able to vote on clause 127, since we are technically on clause 128, but we will be able to have a debate on it. It is important that the country should understand the Opposition's reservations about the changes in inheritance tax and in respect of gifts to political parties.
I must now depart from the all-party accord that has developed over the past few minutes, to focus on the points of dissent on this issue. We must focus on the super-rich because, I say again, this is exactly what the Budget is

about. It is about benefits for the super-rich at the expense of the poor getting poorer. We certainly will not talk in this debate about cuts in income tax from 60 per cent. to 40 per cent., about the disaggregation of income tax and the massive windfall gains that will come to the super-rich because of that. We will not talk about the separate nil rate bands for capital gains tax, because, yet again, those separate bands will produce a massive windfall for the super-rich. We will certainly not talk about the other opportunities for this very small, exclusive class of people in the business expansion scheme and the associated new Rachmanism that it will introduce. We will talk about taxes on wealth, the inheritance tax and gifts to political parties.
The same scandalous picture emerges, because the top rate band of inheritance tax is to be reduced from 60 per cent. to 40 per cent. It is true that the lower rate of 30 per cent. will be increased to 40 per cent., but, because of the increase in thresholds from £90,000 to £110,000, no one at that level will lose. It is true that they will not gain and that the people who will gain a lot are the massively wealthy. They are the people who will be able to benefit political parties under clause 128.
There will be a further polarisation of wealth in a country in which 1 per cent. of the super-rich own a quarter of all private wealth. That figure beggars the imagination. In the last two years the number of people paying inheritance tax has halved, from 40,000 to 20,000, and this Budget will give even more real money to the very few and privileged. Only 5,200 taxpayers paid inheritance tax last year at rates above 40 per cent. The estates averaged £475,000. After this Budget, the same people will on average save £29,000 each—a loss to the Exchequer of from £150 million to perhaps £200 million.
What could the Government have done with that £150 million? They could certainly have built more hospitals, roads, houses and schools. They could have rejuvenated a substantial part of the infrastructure of the country. They chose not to do that. They chose to give it away to people who are already so wealthy that I do not think that they know what their wealth is or can comprehend it.
Because of this Budget, the saving on an estate of £1 million is £148,000. What possible rationale, morality or justification can there be in giving that sum to those super-rich people, especially when their position is compared to that of the only moderately wealthy? To a person who leaves an estate worth £250,000 this Budget gives a saving of only £6,000. There again, one can detect the rationale of this Budget. The poor get nothing from it; it is all taken away from them through social security cuts and cuts in public expenditure. The moderately wealthy get just a bit, a few pickings; they get £6,000 on an estate worth £250,000. But people who are really wealthy, the super-rich, get everything that can be given to them by this immoral Government.
7.45 pm
Inheritance taxes are expected to raise just 2 per cent. of total tax receipts in 1987–88. Let us compare that with previous figures. Between the wars, inheritance tax and capital transfer tax, or its predecessor, estate duty, raised 15 per cent. Before the first world war they raised 30 per cent. That is yet another indication of what the Government are doing: consistently reducing the percentage of taxes and taxation paid by the rich in estate duty and inheritance tax.

Mr. Quentin Davies: Would the hon. Gentleman like to remind the Committee what the rate of income tax was before the first world war so that it can make a true comparison of the contribution of estate duty or capital transfer tax before 1914 and currently?

Dr. Marek: It was very low, and it went up, as the hon. Gentleman will surely know, because of the world wars. Income tax has gone up and expenditure taxes have gone up, because we must remember that in 1979 the percentage of gross domestic product taken in taxation was 34 per cent. and it is now 38 per cent., showing quite clearly that the Tory party is the taxing party. Income tax has gone up and inheritance tax has gone down. Capital taxes have gone down and taxes for which one does not have to work or sacrifice one's leisure, which provide privilege and which give one power, have gone down. But taxes on earned income, for which one has to work and sacrifice one's leisure, have gone up. That is the immorality of the Government's case.
The Government have given up all pretence of governing in the interests of all the country and trying to be equitable. They have given up all pretence of taxing people justly and on a moral basis.
The hon. Member for Daventry (Mr. Boswell), in the previous debate, praised the capital gains tax as being progressive. He is not present now, but I wonder what he would have thought of this measure by the Government, who have abolished the progressive scale of inheritance tax and replaced it by a flat rate, rather similar to the poll tax. I would put it even more strongly. The Government are stealing the nation's money. It is money that should be in the hands of one-parent families, should be used to increase child benefit properly in line with inflation, should be given to the unemployed or old-age pensioners, should be given to retired couples by not cutting their housing benefit, and should be used for building the hospitals, schools, houses and roads that the country so desperately needs.
It is true that the Government have given a little to the ordinary working man and woman by cutting the basic rate of income tax from 27p to 25p, but they have given most of it to the wealthy and the super rich in this measure.

Mr. Butterfill: I do not think that any of us would disagree about the desirability of spending money on many of the things that the hon. Member has suggested, but surely that money can be spent only if it is first earned. If we were to do as he wants and stop this clause going through, surely that would destroy some of the businesses in this country that create the money to provide taxation to enable money to be spent on the things that he considers desirable. Surely he appreciates that in many cases inheritance tax is paid by family businesses.

Dr. Marek: The hon. Gentleman's latter point may be true, but I wonder how this tax and its cutting create money. I do not think that it creates any money at all. It is merely a way of passing wealth from one generation to another and encouraging the second generation to be idle and to live on their accumulated wealth.

Mr. Campbell-Savours: Friends of mine in America who study these matters say that that is the general view there. We now have one generation keeping the next, which in turn is keeping the next, because of the way that

wealth is being transferred down through generations. The only way that we can stop that and restore the enterprise culture in the way that it should be restored is to bring in stringent inheritance taxes whereby each generation has some incentive to do a day's work.

Dr. Marek: My hon. Friend makes the point extremely well. There can be no rationale for only a 40 per cent. flat rate inheritance tax no matter how wealthy a person is.
There is no question of the Government saying that they are taking this step because they want to attract top people to the United Kingdom to run our industry better than we can ourselves or to create wealth. There is no question of reducing the tax simply to increase incentive. It will not increase incentive for anybody. My hon. Friend is right. We can argue about incentives with regard to the top rate of income tax. We may have different views on that, but at least there is an argument. In this case there is no argument.
The Government have no excuse for lowering the top rate of inheritance tax. They cannot say that it will provide a net increase in revenue for the Treasury. We have heard arguments for cutting income tax based on the premise that eventually the net tax collected will increase and the Revenue will benefit. However, I do not think that the Chief Secretary will try to adduce that as an argument. That is not the case. This is a straightforward robbery of the people.
In a press release from the Treasury—I hope that quoting it will not prevent my receiving press releases in future—the Economic Secretary says:
Real tax revenue up following cuts in tax rates".
That is patently not true for inheritance tax. He says:
Father Pedro Navarette put it rather pithily when he warned rulers: 'He who imposes high taxes receives from very few."'
Unfortunately, he who raises the thresholds and provides all manner of loopholes also receives very little from the very few, and that is what is happening here. Two years ago 40,000 people paid inheritance tax and 20,000 paid it last year. Even fewer will pay this year and there will be a net loss to the Revenue of £200 million. On top of that net loss to the Revenue is all the immorality associated with allowing people to pass on extreme wealth from one generation to another. The clause is morally offensive, and the Government know it.
Let me look at the history of the capital transfer tax, gifts to political parties and the new inheritance tax. I do not want to take too long about this, but in the Finance Act 1980 there was a reduction in the rates and an increase in some of the exemptions. In the Finance Act 1981 there was a further reduction in lifetime rates and an introduction of a 10-year cumulation period so that after 10 years one was free of tax. There was an increase in the annual exemption to £3,000. There were improvements in the position of agricultural property and there was an extension of transitional relief for the discretionary trusts.
Let us go forward one more year. In the Finance Act 1982 there was a further reduction in the rates and indexation of the bands. Again, there were amendments to discretionary trusts, alleviating charges still further. There was nothing in the Finance Act 1983, which may have been because of the election. In the Finance Act 1984 there was a further reduction in the rates. Something must have happened to the Finance Act 1985 as happened to our debate on clause 127 a short while ago—nothing.
In the Finance Act 1986—here we go again—the capital transfer tax was replaced by the inheritance tax. It abolished the charge on lifetime gifts made more than seven years before death. Then, in the Finance Act 1987, there was a further reduction in the rates. This year, 1988, there is a further massive reduction in the rates and there is no justification in morality for it. Those activities of the Government are reprehensible and that is one reason why we want to debate clauses 127 and 128.
Before I close I want to refer to a document from Peat Marwick McLintock on Budget changes, with the headline:
Inheritance tax: making the most of the changes".
That is followed by two closely typed pages on how not a lot of people—20,000 at most—can make the most of the changes. They are the only people who will be paying inheritance tax and there will be fewer than 20,000 people paying inheritance tax in the coming year.
I have a document on inheritance tax from Price Waterhouse entitled "Planning for Inheritance Tax". That was valid in October 1986, so I leave it to the judgment of hon. Members what such a document will say after this Finance Bill. It says:
For the first time since 1974, estate owners have the opportunity of passing an unlimited amount of property to later generations free of tax.
Then there is a word of caution:
No one can be certain how long the present inheritance tax regime will last; it may not survive a change of government.
Well, Miss Boothroyd, you bet it will not survive a change of Government.
The document goes on to give many examples. For example, it says:
it may be possible for a married couple to minimise risk by arranging for the spouse with the longer life expectancy to make a potentially exempt transfer … A transfer from, say, husband to wife followed by a gift to the recipient, may be in order".
So will the topping up by £20,000 of a nil-band trust. That has probably occurred to those people who pay inheritance tax. There is another page with about half a dozen tips on how to save thousands, tens of thousands and hundreds of thousands of pounds because of the changes that the Government have introduced in the Finance Bill.

Mr. Ian Taylor: Surely the firm of accountants is showing how sensible tax planning can be organised. That would apply whatever cut-off or threshold level there was for inheritance tax. It has nothing particularly to do with the Budget proposals. The Labour party is proposing to penalise those who have begun to amass assets, which it would tax penally upon death and transfer to the descendants.

Dr. Marek: I am not accusing the accountants of doing anything immoral or wrong. It is extremely useful that we have accounting firms which are able to set out clearly and lucidly all the advantages and loopholes that the Government have been able to create for the extremely wealthy. The 60 per cent. top rate on inheritance tax was not a penal rate.
I think that I have said enough to show the Committee that yet once again—

Mr. Beith: Does the hon. Gentleman intend to refer to other aspects of the clause which relate to political parties?

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Dr. Marek: I will do that, but briefly.
The Government are fearless in their regard for the rich and the super-rich; they want to enable them to become richer, to retain their wealth and to pass it on to succeeding generations, paying as little tax as possible in the process.
As to gifts to political parties, I have very little to say. As I understand it, the limit has been abolished. Anyone can make a contribution to a political party on his or her deathbed without having to pay tax. Previously the contribution had to be made at least a year before death for it to be tax-free. Again, the measure will benefit the Conservative party. I do not think that members of the Labour party or of the SLDP, by and large, will be able to contribute well over £100,000 to political parties. The Opposition will not benefit much from clause 128, but the Conservative party will benefit. I suspect it will benefit because basically Conservatives are mean and nasty people, present company excepted. They do not want to contribute their money until they are on their deathbeds; that is why the Government have introduced the clause.
Of course, there is hope here for the Opposition. If Conservatives do not want to give the money away until they are on their deathbeds, it means that they cannot believe in the measures which the Government have produced for us. We will vote against clause 128. I am grateful to you, Miss Boothroyd, for allowing the debate to range widely.

The Chief Secretary to the Treasury (Mr. John Major): It is within the immediate recollection of the Committee over the last few minutes that events do not always transpire precisely as the Committee would have wished. I say to the Opposition that I am sorry that we cannot debate clause 127 in the form in which the Committee had expected. I am grateful to you, Miss Boothroyd, for the opportunity within the rules of order to refer to matters related to clause 127 in so far as they impinge on clause 128. I hope that you will allow a liberal interpretation of that, although I express my regrets to the Opposition that procedural technicalities will now deny them the right to vote on clause 127. Perhaps I may acknowledge at the outset that we are aware of the objections to clause 127 that the hon. Member for Wrexham (Dr. Marek) has set out cogently and clearly, and we shall certainly accept their vote in opposition even though it has not in practice been delivered and cannot now be delivered.
I shall direct my remarks principally to clause 128, and my hon. Friend the Economic Secretary, who with good fortune will later catch your eye, Miss Boothroyd, will endeavour to respond to the important points made by the hon. Member for Wrexham and to any other related points that you consider to be within the rules of order.
As the hon. Member for Wrexham said, clause 128 deals effectively with the one-year exemption point for donations to political parties. It is essentially directed to a very narrow point of tax law and seeks to remove an anomaly. Although he expressed it amusingly, the hon. Gentleman felt that the clause might offer financial benefit to the Conservative party, though perhaps not to other parties. My inquiries reveal that the Inland Revenue, so far


as records determine, cannot trace a single donation to benefit a political party that would be affected by the provisions of the clause.
The clause abolishes the £100,000 limit for inheritance tax exemption for gifts to political parties made at, or within, one year of the death of the donor. The practical effect of the clause is to make all gifts to political parties entirely free of tax rather than, as at present, simply those made more than a year before the death of the donor. That means that no longer will tax be payable if the donor dies 364 days after making the donation but not if he lives one day longer, or two days in the case of a leap year. It does not admit any new or novel principle of tax law, although it re-establishes a traditional one. The reason for gifts being exempt if made one year or more before death is simply that they were being made for public purposes. That has been the position for many years. That, of course, is equally true even if the donor dies speedily after his generosity has been announced.
The clause also restores the parity of tax treatment which has existed traditionally between gifts to bona fide political parties—I will touch on the definition in a moment—and charities. A bona fide political party is defined as one with either two Members elected to the House of Commons or one Member elected and 150,000 votes cast to candidates of that party.

[SIR PAUL DEAN in the Chair]

Mr. Campbell-Savours: The Minister will be aware that the Labour Research Department and other organisations do interesting work on contributions made by industry to the Conservative party. I know of no contributions to the Labour party on that scale and I doubt whether there are many to the alliance. Are there many contributions of that nature to the Conservative party? Does the Minister expect an increase in those contributions? What kind of people give more than £100,000 to the Conservative party? Are they mad?

Mr. Major: If I may say so, not only are they not mad, but, so far as I can determine, they do not exist. I shall come in a few moments to the point, which I agree is relevant.
I shall turn first to what some may think is a curious link between gifts to political parties and gifts to charities. That is not a novel proposition. The link has existed, with minor breaks, since the 19th century and has been accepted during that period by Governments of all political complexions, sometimes alone and sometimes in partnership with other political parties. Indeed, it was most recently specifically re-endorsed by the Labour Government in 1975.

Mr. Beith: The Minister may say that the link is traditional, but did it not require an amendment which, as I recall, was supported by my friend, John Pardoe, to bring it about in the Finance Act 1975?

Mr. Major: It is correct that there was an amendment to the Finance Act 1975 because there had been an unintended change in the treatment of charities and political parties between 1972 and 1975. The 1975 amendment did precisely the same in principle as is being done by clause 128, which restores the parity of treatment between charities and political parties which had drifted apart in favour of charities.
I promised the Committee a moment ago that I would deal further with the definition of political parties. Having set out the definition, for the purpose of the record, perhaps I should record that the definition embraces not only the Government party and the principal Opposition party, but also the Labour and Co-operative party, the Social and Liberal Democratic party, the Social Democratic party, the Scottish National party, Plaid Cymru, the Ulster Unionists, the Democratic Unionists and the Social Democratic and Labour party, all of which, for the purposes of the clause, are bona fide political parties. It is an extensive list
As to the point that the hon. Member for Workington (Mr. Campbell-Savours) raised a few moments ago, I should say, for the avoidance of doubt, that donations of a size to benefit from the change, that is to say, £100,000 or more, are rare. I have not been able to locate a single occasion on which there has been a revenue loss to the Exchequer because of a donation of that size.

Mr. Alex Salmond: rose—

Mr. Major: I shall give way in a second.
I perhaps anticipate the question still lingering in the mind of the hon. Member for Workington. The fact that there do not seem to have been such donations is no reason why we should retain on the statute book an unnecessary and anomalous inhibition to such gifts, if donors wish to make them. That inhibition has arisen by accident, not design, and deserves to be removed.

Mr. Salmond: The Minister correctly anticipated the question. Might it not be the case that there is no expected Exchequer loss and no gifts of over £100,000 being made at the moment precisely because of the limit of £100,000 before taxation applies? Is there anticipation of loss to the Exchequer from the changes being introduced in the clause?

Mr. Major: That would be relevant only if the donor expected to die within a year of making the gift. As far as I am aware, there have been no donations of that size by people who expected to live for substantially longer than a year, so the underlying point that the hon. Gentleman made was answered by my remarks a few moments ago.
From 1894 to 1972—to come to the point made by the hon. Member for Berwick-upon-Tweed (Mr. Beith)—gifts to charities and political parties were treated alike for the purposes of estate duty. That was at no stage a matter or political controversy or fiscal abuse. In 1972, the Conservative Government introduced a special relief, exclusively for gifts to charities. They exempted gifts up to £50,000, even if they were made within a year of death, and, for the first time, broke that long-standing parity of treatment.
It did not stay broken for long, for the reason given by the hon. Member for Berwick-upon-Tweed. When the Labour Government introduced capital transfer tax in 1975, they doubled the then £50,000 exemption limit and restored once again complete parity between political and charitable gifts, which is the precise intent of clause 128. Subsequent increases in the exemption limit applied only to charities, thus breaking the link again.
These words do not pass my lips often, but I believe that the Labour Government were correct in 1975. There is no reason to discriminate against political parties in this way. They removed that discrimination and were right to do so.
This clause proposes to emulate that excellent example and restore the parity of tax treatment that existed for many years under both Labour and Conservative Governments.

Dr. Marek: I happen to have the Committee report of 5 February 1975. Replying, I think, to the present Chancellor of the Exchequer, who was moving an amendment, the Chief Secretary to the Treasury, Mr. Barnett, said:
We want our political parties to be influenced by the great majority of people who subscribe to the faith of a party, not giving excessive influence to a small number of people who can subscribe large sums."—[Official Report, Standing Committee A, 5 February 1975; c. 930.]
That is the essence of our argument against clause 128.

Mr. Major: I entirely understand that that is the essence of the argument that the noble Lord Barnett advanced in Standing Committee. However, it is also on record that on Report he introduced an amendment of a quite different sort. It restored the parity which had previously existed and which had precisely the same effect as clause 128. On reflection, between Committee and Report, the noble Lord and his right hon. and hon. Friends of the day clearly reached the same conclusion as my right hon. Friend the Chancellor when he decided to put clause 128 in the Bill. So there is unanimity of view between the noble Lord Barnett—and, no doubt, the right hon. Member for Leeds, East (Mr. Healey) who was then Chancellor of the Exchequer—and my right hon. Friend the Chancellor of the Exchequer. Such unanimity is not regularly reached and the Committee should note it with some pleasure.
The underlying point, accepted then as now, is that, just as there can be no justification for the Exchequer creaming off a slice of an individual's bequest to a charity, the Exchequer should not benefit if that individual chooses to leave money instead to a political party. That is something that we in this place should understand as well as most. The anomaly that has arisen over the years is unjustifiable. That is why we have chosen to end it in the Bill.
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Gifts to charities and political parties had parity of treatment for more than three quarters of a century. When that was broken in favour of charities in 1972, the then Labour Government restored parity in 1975. It has since been broken again in favour of charities and this clause once more establishes parity and the symmetry of legislation passed by past Labour Governments and the present Conservative Government. I therefore commend clause 128 to the House.

Mr. Campbell-Savours: Tonight, I wish to say something about the more personal aspects of this issue. I am openly hostile to the principle of inheritance, which I believe borders on the morally wrong. I understand that millions of people in this country feel that they should have the right to pass on wealth from one generation to another. It may well be that society should allow people to transfer wealth in small amounts from one generation to the next.
When I was a young man, I had an argument with my parents, and it has lasted for many years. It is relevant to today's discussion. It arose, after I joined the Labour party in 1965, from my view that every generation had a self-standing responsibility to make its own way, and that society should give people the maximum opportunity and

incentives to go out and do a fair day's work for a fair day's pay—and to join the free market and develop businesses. That is why I have consistently supported the Government over the years whenever I have felt that measures they were introducing would help small businesses.
The argument I had with my parents was about whether it was right for people to inherit. I announced 23 years ago to my family that I did not want to inherit anything from them, although in 1960 I received, to my eternal regret, £100 from an aunt. That was probably worth £800 or £900 in today's money, and it has compromised me down a lifetime.
I have stood by my view and today I stand to lose a substantial inheritance from my family. Every generation must be absolutely free-standing and should not receive wealth from previous generations. People must go out and make the effort and be given every incentive and opportunity in life. I know of friends who have not enjoyed the experience that I have, who knew that they stood to inherit large amounts of money later in life. Some of them have not done what they could have done because they knew they would inherit one day, so they lost the incentive to go out and make an effort themselves.
I know that this view is not uniquely held by people of my political persuasion. There are many Conservative families in this country who own large amounts of wealth but who are opposed to inheritance for precisely the reason that I oppose it. They know that effort is the way to build society. It is often people who are born into articulate, middle-class circumstances who are capable of going out into the world to make an effort and develop businesses.

Mr. Beith: A good friend of mine who is a Liberal and a successful small business man held the same view as the hon. Gentleman. It led him to decide he would pass on none of the money he had made to his children but that he should educate them privately—in this he differed from my view—and give them the best possible start in life. From the moment that they were 18 they would not receive a penny more from him. That shows that the hon. Gentleman's view has wide currency.

Mr. Campbell-Savours: I am grateful for that example of support.
I shall not identify them, but I have discussed this matter privately with Conservative Members on a number of occasions and I know that some of them will go a long way down this road with me. It would be wrong to identify them. I know that tonight they will vote with the Government in favour of cuts in this tax, in the knowledge that, as a result of this Budget, many people will inherit more money.

Mr. Quentin Davies: The hon. Gentleman recognises the great importance in any economy of incentives to work, and he has also mentioned the importance of incentives for enterprise to start one's own business. Does he recognise that, rightly or wrongly, many people do not work for themselves but for the younger generation? If we were to remove the possibility of people accumulating money for the benefit of their children, human nature being what it is, we would remove a substantial element of incentive for work and enterprise, from which society benefits.

Mr. Campbell-Savours: I have also discussed that matter within my family and with many others. I do not accept that proposition. What happens is that people who have made money, or who are acquiring wealth, seek to justify what they are doing, and they use that as an excuse. They say, "I am doing it for you and for those who follow me." They have to find some jusification for this acquisition of wealth. I do not say it to my children. I do not see why the hon. Gentleman, if he has children, would say it to them. If he did not have children, is it not possible that life might be just as exciting and that he might equally find incentives for going out there, generating wealth and making money? Is he saying that if he did not have children, he would not work as hard?

Mr. Davies: I believe that if we remove the possibility of human beings working for the next generation, we remove the major incentive that has led to human beings, down the millenia, accumulating capital. Without it, we would not have had any economic progress and we would still be in our caves.

Mr. Campbell-Savours: I thought that the hon. Gentleman was going to add a new strand to his argument, but he just repeated what he had already said. In my family, that motive has no bearing on the willingness, the eagerness or the desire of people to go out and create wealth. It had none when I made my announcement to them. They set out to do other things with their money, and my family is making provision for education in south Wales, through a trust. I am pleased that that is being done. That is the kind of choice that people should be making when they acquire wealth. They should be saying that they want to contribute to society, and should not think exclusively in terms of handing it over to their children, because they never understand when they do that what damage can be done to the forthcoming generation.
I see the hon. Member for Watford (Mr. Garel-Jones) shaking his head. We will not go into his personal circumstances, but I am sure that he would wish to intervene in the debate, were he not a Government Whip, to clarify the matter for us. People try to justify the acquisition of wealth on the basis that they will hand it on to the next generation, when there are perfectly acceptable reasons and incentives for people to create wealth.
I do not know how far we shall go with this argument, but I was told that Jeffrey Archer—an eminent journalist and author among other things—has made similar provisions and has made similar statements to mine, although I might be wrong. I am told that he is a model of entrepreneurial success, and it might be that he understands my argument. I know that there are Conservative Members who understand this argument, and it might be that he and others recognise that when one transfers wealth down through the generations, not only does the generation that accepts it sometimes lose the incentive to create wealth on its own account, but often passes the lack of incentive down to another generation and the damage can often be done within that generation, to the grandchildren. Often, they were not present when the wealth was made in the first place and they do not understand the mechanics, and often the pain and the sacrifice, of the people who generated the wealth.
We have all had these experiences—they are not exclusively known to Conservative Members. I understand what happens during that period, because I have seen it

within my generation. Before Conservative Members vote tonight—no doubt they will be herded into the Lobby, although there have been some complications—they should think carefully. The Conservative party is not giving due consideration to what this argument is about, I understand that it maintains that it is the party of enterprise and of the entrepreneur. I lay claim to that title for the Labour party, because the Labour party understands the fundamental principle that to have true entrepreneurial endeavour we must ensure that the incentives are there. The way that the Government have gone about capital transfer tax and inheritance tax shows clearly that they do not understand that principle.

Mr. Julian Brazier: The hon. Gentleman seems to feel that the sole and only point of wealth is to enrich the individual, although he stressed that the individual who passes it on can use it for other purposes. The same applies with wealth that has been transmitted, and I have two obvious examples. A friend of mine is a missionary on an unpaid basis in Africa, and he would not be able to do that if he had not inherited money from his parents. To take an example closer to home, I have worked for a family business that was all the more successful and close-knit precisely because the ownership of that business had been passed from father to son. This change in the legislation will make it possible for that to continue.

Mr. Campbell-Savours: There will always be exceptions to the rule, and I think that we can accommodate them by rejigging the law, perhaps not in the way that the Government would want. I put to the Committee what I am told is a fact—that in Japan, the level of inheritance tax is extraordinarily high. The Chief Secretary shakes his head, so perhaps my information is wrong. I am told that it is very high, but the Japanese manage to succeed industrially.
I am sure that there are lessons to be learned, if not from the Japanese, from what is happening in America. Inevitably, when the Americans realise the damage caused to society by the way that wealth is being transferred down the generations, they may react and deal with it. If we do not do so, it will be the cancer that undermines the whole of our economic activity in the future.

Mr. Beith: The hon. Member for Workington (Mr. Campbell-Savours) raised interesting questions that have to be considered by Conservative Members who seek to strengthen those aspects of our culture that support enterprise. I would not draw the same conclusions as the hon. Gentleman and I shall argue that there is a different way to tackle the problem. There is a tension inherent in the Government's philosophy, between their desire to encourage enterprise and the belief that people must stand on their own feet and the preservation within our society of large amounts of inheritance, which concentrates wealth among relatively small numbers of people.
Most of us must have had the experience that the hon. Gentleman has had of knowing people who have inherited in circumstances that have led them to do less well in their lives than they might otherwise have done.
We know of businesses which went wrong in the second or third generation, or the estate that went to seed because the person who originally built it up did not pass on with the estate the qualities of personality and commitment which had enabled him to build it up in the first place.
In contrast, the hon. Member for Canterbury (Mr. Brazier) has given examples of businesses which have benefited from being passed down through a family, and which have carried through the family a certain commitment to the employees which would not be at variance with the Government's philosophy, which is based on the belief that the family, having benefited, has an obligation to those who have worked for it for successive generations. Sometimes the employees also go from one generation to another.
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The Government do not seem to be addressing that important philosphical issue. They seem content to maintain the broad structure of capital taxation while easing its impact through the changes in inheritance tax that we are discussing on clause 128, instead of considering more radically what could be done to our capital taxation.
I hope that the hon. Member for Workington will support the argument that we have put to the Government for years—that radical changes in the taxation of capital transfer would encourage the wider distribution of wealth. We submit that the best way to do that would be by an accessions tax the burden of which falls upon the recipient and which would be graduated and have thresholds to ensure that people could receive relatively small legacies without suffering a tax penalty, but would have to pay tax on larger amounts.
Therefore, the donor would have an incentive to spread the wealth more widely, because the effective method of tax avoidance would be to distribute the gifts amongst the largest number of recipients. Whether they are members of the family, friends, good causes or whatever, the wider the gifts are distributed, the less likely is any one recipient to fall within the threshold. Such a tax should also have a cumulative effect so that any recipient should have receipts other than those from the one donor taken into account. That, too, would help to ensure that the wealth was more widely spread.
Instead, the Government are preserving a taxation system that appears to be a macabre lottery because of the seven-year rule that tax can be avoided entirely if death can be predicted. It would be hard to find a better case for bringing in President Reagan's astrologer than seeking advice on how to dispose of gifts by predetermining the time of death.
Why cannot the Government espouse the radical reforming zeal which the Chancellor wishes to have attached to his name in history and make some real attempt to change the capital taxation system so that it encourages the wider distribution of wealth with minimum pain and disincentive? The argument for reducing income tax levels is based primarily on incentives that the Government seem to recognise more readily at the top of the scale than at the bottom of the scale. It is based on the idea that taxing people at the point at which they are earning more money poses a very real disincentive. There is not the same powerful disincentive if people are taxed at the point at which they are receiving windfall gains, if the tax system is so organised that the person who can give away large amounts of money will do it more widely and a much better social purpose will be served as a result.
Therefore, we argue—we have tabled amendments to this effect—that there should be an accessions tax rather than an inheritance tax, and over the years we have set out ways in which that can be done.
We are also discussing exemption from inheritance tax relating to political parties. The Minister made a rather good case as he picked his way through the history of this matter. As I pointed out to him in an intervention, my former colleague Mr. John Pardoe was involved in seeking to bring about the limit which the Government now seek to abolish.
When I looked at the clause before tonight's debate, I considered the £100,000 to be a threshold and I believe that it was argued in those terms in 1975. Therefore, it would not be true to say that political parties and charities were put on a precisely equal footing. There was a difference between them which became more significant as time passed. Political parties effectively were frozen at the £100,000 threshold on tax liability for gifts made at or within one year of the donor's death. Charities had no such limit.
There is a case for a distinction between political parties and charities. I do not believe that it is a very strong case, as I regard political activity, which is primarily a voluntary activity, as analogous to charitable work in many ways. In a democracy, we ought not to regard political activity as being of less value than other voluntary activities in other areas of the law where such an argument is relevant. In a democracy it behoves us to recognise political activity.
That is why I believe that political work, particularly voluntary political work, should not be excluded from the honours system. I have more sympathy for those who engage voluntarily in political work than I have with the knights of the shires on the Conservative Back Benches. They should be regarded as eligible for recognition for their voluntary work as are those who engage voluntarily in other aspects of public life.
The argument for a distinction or a threshold is that by definition charities do not represent political causes which can be advantaged by getting larger sums of money than other political causes. The argument may be weighted by the amount of money that is available to one political party. There seems to me merit in the threshold. It is almost certainly true, as has been argued, that the fact that recently there have been no gifts above the threshold may well be because people are pitching their gifts appropriately inside the threshold. Therefore, there is an argument for drawing a distinction between political parties and charities at the point at which gifts become very large.
I am bound to say that the history of the matter is sufficiently tortuous and complicated to give the Minister something of a leg to stand on when he says that the Government to some extent are redressing an anomaly by choosing to put the matter in the Bill in that form. I shall be very interested to hear what other views are expressed during the debate. I cannot advise my right hon. and hon. Friends to support the principle that gifts to political parties should be in a wholly different category from those to charities and that the whole principle should be opposed on those grounds.

Mr. Matthew Carrington: I shall crave your indulgence, Sir Paul, in addressing most of my remarks to the clause that is not before the Committee, and I hope that I shall be in order.
The effect of the two clauses is principally to simplify the way in which the inheritance tax operates. To that extent they are greatly to be welcomed. We have had much talk about the morality of inheritance tax, and indeed much talk about the morality of inheritance. The morality of inheritance tax, when the tax is complex and when the rates are very high, is the morality of avoidance; it is the ability of a whole industry to advise those who have accumulated a certain amount of wealth on the best and most efficient manner of passing on what wealth.
I turn to the remarks of the hon. Member for Workington (Mr. Campbell-Savours) about the effects of inherited wealth. I have a great deal of sympathy with his view that there are many well-recorded instances when the inheritance of wealth in the wrong fashion—sometimes too early—has caused the recipient of that wealth not to achieve his potential success in life. I would also point out that there are many instances in history, and I suspect in the present, of the inheritance of wealth having been of great benefit to society. Indeed, one does not have to look much further than the great philosophers of the 19th century. One can go back even further to philosophers such as Montaigne, who were able to do such great work purely because they could devote their energies to study because they had inherited wealth. They provided all of us with the benefits of that study.
I accept that inherited wealth is had for the individual in some instances, but there are many instances in which it has a good effect.

Mr. Macdonald: The hon. Gentleman referred to the fact that if philosophers inherit wealth it enables them to pursue their studies. Does he think that the fact that Ludwig Wittgenstein gave away his entire fortune in any way impaired his ability to philosophise?

Mr. Carrington: I am grateful to the hon. Gentleman for making my point. Wittgenstein would have been unable to make the decision to give away his great wealth unless he had had that great wealth initially, which gave him time to study. I agree that he came to a parodoxical conclusion, but that was equally true of his writings.

Mr. Campbell-Savours: The hon. Gentleman expressed sympathy for, if not agreement with, my views. Does he accept that those who make good use of what they have received could equally have been provided for if the transfer of money from one generation to theirs had been by way of indirect payment? In other words, they would not be direct recipients, after tax, of these moneys. Another arrangement would have to be provided.

Mr. Carrington: The hon. Gentleman opens up many possibilities about the way in which those whom society considers, on the whole, to be worthy of funding could be funded. That is true of authors and poets as well as of philosophers and, to some extent, scientists. When passing on wealth, one has to decide who is to be the beneficiary. History tells us that, unfortunately, political power and censorship have played a very unwelcome role by curbing the advances that society might otherwise have made. I accept that there are perhaps evils in inherited wealth, but there are perhaps even greater evils in the alternatives.

Dr. Marek: I hope that the hon. Gentleman does not accept that there are perhaps evils in inherited wealth. I hope that he certainly accepts that there are evils in

inherited wealth. One only has to consider the events surrounding the French revolution in 1789 to recognise that fact.

Mr. Carrington: We are straying a long way from the clauses that are under discussion, but I hope that you will indulge me, Sir Paul, in a somewhat indulgent debate. The French revolution, as with so many other revolutions, started not with those who did not have wealth but with those who had very considerable wealth and privilege. They rebelled against the authoritarian power that other sections of society had over them, which they felt was unjust. What, in many ways, caused the French Revolution was inherited wealth being passed on among the bourgeoisie in France rather than an upsurge among those who had no money. I agree that great inherited wealth in France was attacked by lesser inherited wealth, but all of it was, nevertheless, inherited wealth. However, that was a different society and a different case.
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Inheritance tax needs to be put into perspective. The exemption level has been raised from £90,000 to £110,000. In absolute terms, that is a considerable sum of money, but I shall try to put it into perspective by considering what has happened in my constituency. It is now not unusual for a council flat at the top of a high-rise block to be valued for right-to-buy purposes at considerably in excess of £100,000.
People who exercise their right to own their own home, however modestly, in central London, elsewhere in the south-east and, as the economy develops, throughout the country, will now be exempted from inheritance tax. They will be able to pass on the benefit of their home, for which they have worked and struggled. Quite rightly, from society's point of view, it should be kept out of the tax net. By reducing inheritance tax to 40 per cent. it will be brought into line with the top rate of income tax. That, rightly, will simplify the taxation system.
What is the effect of penal taxation on inheritance? It makes it very difficult for people to pass on small businesses. They need time in which to grow within the compass of the family that started them so that wealth can be transferred from one manager to the next, perhaps across the generations. That is true of small manufacturing companies. It is even more true of the farming industry. I do not have many farms in my constituency, but I am reliably informed that the capital value of a farm will make it difficult, if inheritance tax bites hard, to pass it on.
The other aspect of inheritance tax that is bad for society is its effect on our artistic inheritance. One of its effects—though perhaps not on the great artistic treasures that are rescued by the state—relates to our minor artistic treasures: minor pictures and minor antiques. That heritage has been built up over the centuries. A very high rate of inheritance tax makes it very difficult to pass on those treasures to future generations. When a person dies, they are sold. The experience of the last 20 years has shown that the trade in antiques from this country in particular has been one way. They have been exported, with the result that minor works of art have been lost to us for ever overseas. One of the effects of inheritance tax has been to accelerate that trend.
The simplification of inheritance tax is greatly to be welcomed. It will enable families to pass on businesses,


which they were unable to do before, and it will enable society to benefit from the wealth of one generation being passed on the the next.

Mr. Macdonald: I was grateful for the implication, if not the admission, by the Minister that the Conservative party is a charitable institution. We have often thought that to be the case, but the Minister's implication was interesting.
I think that you are quite right, Sir Paul, to indulge hon. Members. You are right to be liberal in your interpretation of how we may debate clause 128 and to allow us to refer to clause 127. The two clauses are linked. I am driven to that conclusion because, when I look at clause 127, I can find no justification for its inclusion in the Bill on the ground of economic efficiency or on the ground of social equity. I am driven to think that the reason for the inclusion of the clause is that it is linked to clause 128, in the sense that the governing party of this country gives money to the wealthy and hopes that the wealthy will end up giving money to the governing party. That is rather a blunt and crude conclusion, but I cannot find any other justification for clause 127.
I do not understand how the grounds of economic efficiency and incentives, which have been advanced about other cuts in taxation, notably income tax, can be stretched to justify the reduction in inheritance tax. I do not understand how the changes will act as incentives to those who are contemplating giving away estates to their children or to other recipients, particularly in view of the marginal nature of those changes. Those changes are not marginal when we consider the global sum given away, for example, through the cutting of the top rate of tax. According to the Government, that figure will be about £150 million. One would have thought that £150 million, plus the sum that will be lost through the raised ceiling, would be much better utilised in retraining unemployed workers than as a spurious attempt to confer a nebulous incentive upon the people who are thinking of giving away estates.
There is a difference between inheritance tax and income tax. Two or more parties are involved in inheritance tax—the person giving away the estate and the
recipient of the estate. We must also take into account the disincentive effect on the recipients of estates. It is difficult to see how inherited wealth gives any incentive to the recipient to work harder. One would have thought that the contrary would be the case—that a substantial windfall gain through inheritance tax would be sufficient to kill any incentive to work.
Even if we concede that there is an incentive in reducing inheritance tax, surely it must be more than offset by the disincentive to the recipient. One wonders whether, if the Treasury had commissioned a study, the Government would have taken note of it, given what happened to the study on income tax and incentives.
We do not see any argument for the reduction of inheritance tax on the ground of incentives. The main basis on which to assess the changes in taxation is that of social equity. Within reasonable limits, it is right for individuals, when they die, to be able to leave some of the wealth that they have accumulated during their lifetime to their spouses and children. The hon. Member for Stamford and Spalding (Mr. Davies) said that that was, to some extent,

what drives people on. They have an urge to accumulate a certain amount of money to pass on to their children. That is a reasonable and justifiable motive, but one cannot stretch the argument to say that people are driven in their working lives by the urge to make their children millionaires. People certainly work to give their children a secure foundation, but we cannot take the argument any further.
We all listened with interest to the comments of my hon. Friend the Member for Workington (Mr. Campbell-Savours). He argued against any form of inheritance, except within certain reasonable limits, and understood, from private conversations, that some Conservative Members also hold that view.
We are often told that the economic libertarian argument is the driving ideological force behind the Government. Philosophers of that persuasion believe that that is right, and they often say that their logic leads them to argue against any form of inheritance and that everybody should stand on their own two feet, independent of any social ties. If some of the economic libertarians on the Conservative Benches followed their beliefs to their logical conclusion, they would reach the same conclusion as my hon. Friend the Member for Workington.
That is not the Socialist point of view. As Socialists, we acknowledge family ties and duties, just as we acknowledge wider kinship to society as a whole. We believe that a balance must be struck. We consider the social effects of the accumulated wealth that has built up over successive generations. That is perhaps more deep-rooted in the United Kingdom than in other Western societies. An excessive accumulation has a serious social impact and is unhealthy for society as a whole. It cuts off economic opportunities.
We cannot say that there is anything approaching equality of opportunity when people start their working lives from such different bases. Those who begin with much more material advantage are bound to start the race ahead of the rest. When that process is repeated generation after generation, a certain rigidity is built into society, and we have the rise of a nebulous entity—some form of social establishment. That is unhealthy for society. Some Conservative Members go on about rigidities in the labour force, but they should look at the rigidities in the establishment through the accumulation of inherited wealth.
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Another bad effect of inherited wealth is the link between wealth and power and influence over social and political decisions. The link between clauses 127 and 128 is a sterling example of the link between wealth and social and political influence. The figure of £100,000 is redolent of people who have observed the P and O strike recently. Access to such wealth conveys social and political influence.
Vast social inequalities are to a large extent undesirable in themselves. Perhaps that is not true in an ideal world where there is a surplus of all goods and no scarcity anywhere. If society were divided between billionaires and millionaires, the same objections would not arise. Today, however, we have a society of scarcity, of less, and of abundance. Millions of people appear to have been thrown on the scrap heap and the Government make only token efforts to retrain, reskill and re-educate them so that they


may have genuine opportunities. Only then could the Government claim that they really want equality of opportunity.
I am struck by the contrast between those who have been thrown on the scrap heap and those who will benefit from the Budget. I think of the reduction in inheritance tax and the impact of housing benefit changes on old people. How can it be right for the Government to give away millions of pounds to the already wealthy through these changes in inheritance tax and embark on changes to housing benefit which take away from old people all but £3,000 of savings? If the wealthy have a right to pass on their savings to their children, do not these old people have a right to pass on some savings to their children? What savings will they he left with after the housing benefit changes? Only enough to pay for their own funerals.
The contrast here is between handouts to the rich and the Government taking away from the really needy. The top 1 per cent. own one quarter of all private wealth, and the bottom half share just 4 per cent. of all private wealth. The Budget merely polarises existing inequalities. It deepens existing injustices and it deepens already unhealthy trends in society. Most of all, it confirms the image of the Budget and of the Government as callous, uncaring and deeply unfair.

Mr. Quentin Davies: The Committee must be grateful to the hon. Member for Workington (Mr. Campbell-Savours) because he raised in the debate on this clause also, which is not in fact the clause which is officially the subject of this debate, several philosophical and economic issues of wide and fundamental importance which must underlie any discussion of inheritance tax.
The hon. Gentleman started with the declaration of a private interest, and I ought perhaps to do the same. Unlike him, I am not able to renounce any substantial inheritance. If my parents were to predecease me—I hope that if that happens the event is as long delayed as possible—I would not stand to inherit any substantial wealth.
I am sure hon. Members will agree that we should be discussing not the chance fortunes of individuals but the basis of the collective good, of general advantage. In his analysis of that, the hon. Member for Workington based his argument on a fundamentally false premise, which was that people essentially work for themselves and not for future generations. My proposition is that, while people work for themselves, they work also for the new generation—for their own children and grandchildren.
I was particularly surprised that the hon. Member for Workington made that mistake, because he declared himself an expert on the subject of small businesses. I should have thought that anybody who knew about small businesses would have encountered a striking phenomenon about them. It is the frequent if not universal desire of people who set up small businesses to see their own children take them on and the hope that those businesses will provide a livelihood for their children and their children's children. They are hopeful of creating an institution that will outlast them and that will be of lasting benefit to future members of their families.
Let us suppose that I am wrong and that the hon. Member for Workington is right. What would happen if people worked only for themselves? The answer is that on a net lifetime basis no one would invest. I say "on a net lifetime basis" because it is conceivable, on the hon. Member's hypothesis, that some people might at an early

stage in their lives invest—but that would only be to disinvest later in their lives. Some people—because one can never predict the date of one's death—might under-shoot and some might over-shoot, But in aggregate everything produced would be consumed in the course of the person's lifetime.

Mr. Morgan: Will the hon. Gentleman consider also the example of immediate post-war Japan? One anecdote told about it is symbolic of those who reconstructed Japan. It concerns the founder of the Honda motor cycle company, who was asked in the early 1950s, when Honda was already showing astonishing signs of growth and international competitiveness, why he was adopting such an extraordinarily highly geared financial approach—not highly geared in the sense of his motor cycles—to his company's expansion. It was far more than was sensible in relation to his equity stake in the business, given that any slight downturn would make the business collapse immediately. He replied that that might be so, but the assets he had created would be taken on by somebody else, and that would be all to the good of Japan. It is alleged that many Japanese business men followed exactly the same philosophy in setting Japan on the road to the great economic success that it now enjoys.

Mr. Davies: One of the remarkable things about Japan is its very high savings rate. I have always associated that with the strong sense of family and family continuity. Anybody who knows Japan—I know it a little, albeit not profoundly, and I admire it greatly—knows that the fundamental backbone of Japanese industry is still the family company and the desire to found a company that one's children and grandchildren can take on. That is the phenomenon about which I was speaking earlier, and it is a universal human trend. It is pronounced in Japan and has had particularly happy economic consequences for that country.

Mr. Chris Smith: Is the hon. Gentleman aware that the country which currently tops the OECD league for revenue coming into the exchequer from wealth transfer taxes is Japan?

Mr. Davies: That may well be so, but the Government are tapping a particularly strong source of revenue, for reasons that I have already illustrated.
The Committee cannot deny the logic of my proposition, which is that if people worked only for themselves there would be no net investment on a lifetime basis, and they would accumulate at the beginning of their lives only to consume what they had produced before their lives came to an end. On that hypothesis, which is based on the view of human psychology that I have already attributed to the hon. Member for Workington—he has now returned to the Chamber; I am sorry that he did not hear the compliment that I paid him earlier—there would be no increase in human wealth or incomes, no progress, no civilisation.
What would happen if, in a misguided moment, the House of Commons were to take fiscal or legislative action—I sense that a number of Opposition Members would like us to do so—that would effectively prevent individuals from passing on to their children or grandchildren the wealth that they had accumulated? Such legislative and fiscal action would produce exactly the same results as if the views of the hon. Member for Workington on human


psychology were correct. No one would look forward to passing on anything. Everyone would have every incentive to consume what he had produced in his lifetime. The same black consequences for our economy and for civilisation would flow from such action.

Mr. Carrington: I have listened with fascination to my hon. Friend's argument, but he has not addressed himself to one of the fundamental points about small businesses. The enthusiasm of someone who sets up such a business—the desire to pass it on and to make it grow as large as possible—is not only of benefit to the inheritors of the wealth, but also of direct benefit to the employees, and therefore to society as a whole.

Mr. Davies: I disagree with nothing that my hon. Friend has said; I think that human psychology is a great deal more complex than the hon. Member for Workington wished us to believe. I think that human beings are to some extent selfish and to some extent selfless, and that the ambit of that selfishness, or that selflessness, extends to their children, their grandchildren and their employees. Some people are selfish; some people think of the next generation. But my point is that there is in human motivation a substantial element of concern with one's family and one's heirs. Human society could not, except at its peril, deprive itself of the tremendous motive power—the tremendous incentive to work and be enterprising—with which that substantial strain in human psychology has provided us.

Mr. Campbell-Savours: rose—

The First Deputy Chairman of Ways and Means (Sir Paul Dean): Is the hon. Gentleman giving way? I am not quite sure.

Mr. Davies: I thought that I had sat down, Sir Paul, but I do not wish to deprive the hon. Member for Workington of an opportunity to address the Committee again. I am happy to remain, as it were, notionally on my feet, while he makes the intervention that he wishes to make.

The First Deputy Chairman: We will assume that the hon. Gentleman is notionally on his feet.

Mr. Campbell-Savours: I do not wish to intervene.

Mr. Andrew Smith: I detected a shift in the emphasis of the hon. Member for Stamford and Spalding (Mr. Davies) following the intervention by the hon. Member for Fulham (Mr. Carrington). Until then, the hon. Member for Stamford and Spalding had been saying that someone worked for himself or for his children. If he did the former, there would be no net lifetime investment; therefore, only inheritance made it possible for such an investment to take place. His hon. Friend reminded him that there are other social obligations that people seek to fulfil and other contributions that can be made to society at large, of which one's children or descendants will be part.

Mr. Quentin Davies: I do not know whether the hon. Gentleman was listening to the early part of my remarks. I emphasised throughout my speech, and do so again, that human psychology is complex and that there are many

factors involved in it. I intervened in order to redress the balance that I believed had been upset by the remarks of the hon. Member for Workington (Mr. Campbell-Savours). Of course I would not deny that many people work entirely for themselves. My point was to try to bring home to the Committee, in its consideration of inheritance tax, the important part that is played by people's desire to benefit their descendants.

Mr. Smith: I understood the remarks of my hon. Friend the Member for Workington (Mr. Campbell-Savours) to imply not that people simply work for themselves but that they work in order to benefit both themselves and society at large and that their children would benefit more as a result of not inheriting the wealth that had been accumulated. Of course, they would benefit in the general sense through the contribution that that would make to society as a whole, and if society carried on according to those principles, it would be a healthier society for everyone.

Mr. Campbell-Savours: May I quote again the example of my family and the experience there? It is my view that the good that will be done with the money that within my family will be expended on education in south Wales will be far more than would ever be the case if it were given to me or to anyone else in my family who would stand to inherit. My family will be richer in every sense as a result of the decision that has now been taken as against handing the money on to me.

Mr. Smith: I agree with my hon. Friend, and that makes a compelling case for progressive inheritance taxation. The clause takes us further away from that. The important characteristics of the clauses are that they make taxation less progressive and give rise to an even greater concentration of wealth and income in the hands of the few. The Government have deliberately failed to tackle the many loopholes and devices by which inheritance taxation and its predecessors have become so much more honoured in the breach than in the observance.

Mr. Quentin Davies: The hon. Gentleman has totally misunderstood the essential point. The point is not what the hon. Member for Workington chooses to do with his inheritance, because, with respect, he did not create the wealth about which we are talking. His parents created the wealth. Therefore, the important point is their reason for having created that wealth. They created that wealth in the expectation of the hon. Member for Workington receiving part of it. Their expectations might have been disappointed or they might have been delighted to hand over the wealth to whatever good charitable cause the hon. Member for Workington designated. However, one cannot with impunity deprive the human race of the essential element in the economic incentive, which is to work in order to hand money to the next generation.

Mr. Smith: If the hon. Gentleman had been listening, he would have realised that I was advocating progressive inheritance taxation. He would not have heard me advocate total confiscation from one generation to another, and neither did my hon. Friend the Member for Workington. He said that there should be a reasonable threshold, as did my hon. Friend the Member for Western Isles (Mr. Macdonald).
The changes that we are debating merely compound the effect of the income tax changes and so much else that we


have seen in the Budget. The hon. Member for Fulham made a not unreasonable point when he said that he saw merit in relating the taxation rates on inheritance to income taxation rates. However, with the banding being abolished in the case of inheritance tax, we are faced with precisely the same problem as that facing us on income tax.
The differential between the higher and lower rates has been narrowed and the progressive element of the taxation system is being squeezed out almost entirely from inheritance tax. That approach takes society away from the principle that Conservative and Labour Members have shown they support over the years—namely, that the wealthiest who own most should make a progressively greater contribution to the common good through taxation.
The retreat from that principle characterises the Budget more than anything else. It is a further confirmation that the Budget is for the rich at the expense of everyone else. Of course, it is very much at the expense of everyone else because. as my hon. Friend the Member for Wrexham (Dr. Marek) pointed out in his opening contribution, the general burden of taxation in society, including taxes on expenditure, is increasing under this Government when taxation on capital gains and transfers and inheritance tax is decreasing. The ability of the very wealthy to pass on wealth to their descendants is being paid for by the rest of us in the form of taxes on income and expenditure. In evaluating the taxation system as a whole, one has to consider what can be achieved by cuts in expenditure taxation, cuts in income taxation, or increases in public expenditure, and applying the money to those in social need. In that way inherited wealth can be taxed effectively.

Mr. David Martin: What the hon. Gentleman says assumes that the productive part of the economy remains static and therefore that the incentives of reduced taxation do not work. Surely more money is made as a result of reduced taxation and is therefore positive in society.

Mr. Smith: I am pleased that the hon. Member for Portsmouth, South (Mr. Martin) asks about incentives. Much of this debate has been precisely about the ability to inherit as a disincentive rather than an incentive to work. Indeed, the receipt of large amounts of unearned wealth is a powerful disincentive to many rich people.
According to market economics, which the Government and Conservative Members profess to follow, this is a great misallocation of resources, as there is no reason to suppose that the sons and daughters of the very rich will somehow be the most efficient custodians of, or reach the best decisions about, the way in which that wealth should be allocated and applied.
I have heard no evidence, certainly not during this debate, which I have sat through, to substantiate arguments from Conservative Members that higher or progressive inheritance rates would be a great disincentive to small business people. I have heard that point being made, but I have not heard any hard evidence of a correlation between the rates of taxation imposed and the amount of enterprise, the rate of formation of small businesses, or their success. There are no facts to substantiate the points made by hon. Gentlemen.
My second argument in rejecting the change proposed in clause 127 is that it deepens the already profound inequalities in our society and the polarised distribution of

income and wealth. As my hon. Friend the Member for Western Isles has pointed out, that distribution of wealth carries with it power and influence, which those with inherited wealth who exercise it have done nothing to earn or merit. This approach does not create the property-owning democracy that the Tories like to boast about to the people of this country, but further concentrates wealth and power in the hands of very few people. That entrenches ever more deeply the divisive and damaging class system.
When set against the deepening poverty of many in our society, the measure is nothing short of obscene. One cannot but be struck by the contrast between the treatment of the very rich in raising the threshold above which inheritance tax will be applied from £90,000 to £110,000—reducing by a quarter the number of estates to which the tax will apply and the treatment of pensioners who lose housing benefit as soon as they have capital of more than £8,000.
These changes are as significant for what they do not do as for what they do. They do nothing to tackle the wide-scale avoidance of inheritance tax. The Price Waterhouse booklet, from which my hon. Friend the Member for Wrexham quoted, showed that people already have the opportunity to avoid these taxes if they are well advised and do not suffer an early death. These changes do nothing to tackle the exemptions on gifts and the trusts and companies which have been created to take advantage of the further exemptions and concessions which are already available. They do nothing to tackle the many other devices by which people circumvent and minimise their tax liability. These changes ensure that the wealthy do not pay their fair share of taxation. My hon. Friend the Member for Wrexham referred to the diminishing share of the total tax take that is comprised in inheritance tax.
There is no justification for these concessions. The Chancellor boasted in his Budget speech that there would effectively be a 20 per cent. tax rate for businesses, which would be the lowest in the world. My hon. Friends have pointed out that much more successful and dynamic economies than ours have higher rates of taxation on inherited wealth. I do not accept the Chancellor's boast of Britain having the lowest tax rates in the world as reflecting any achievement by the Government. Rather, it is an indictment of a Government who, through their Budget and every other policy that they implement, put the interests of the very rich ahead of those of the rest of the country, at the cost of the poorest.
The Tory party glories in inequality of wealth. Just as the rest of the Budget makes Britain a more unfair society, plunging many people deeper into poverty and making the very rich even richer at the expense of the rest of us, so this inheritance tax proposal entrenches those divisions and passes them on from one generation to another. Paradoxically, this proposal will bequeath a poor legacy to our children.

Mr. Geoffrey Dickens: Before I became a Member, I envied the great skills of the late Iain Macleod. I felt that his judgment of one nation was the right formula on which to work. I was a working-class lad from a humble background and I felt that the party that represented the nation without that terrible class hatred was the Conservative party, so I wanted to become a Conservative.
I have listened with great interest to many of the Opposition's contributions. The words "wealth" and "inheritance" have been used as though they were dirty words. This country needs the great risk-takers, entrepreneurs, inventors and job-providers. They are the people who make the country tick. They create the wealth so that people can enjoy the benefits that are distributed. It is the Conservative party that seems to be distributing these things more fairly and targeting the help where it is needed most.
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One of the greatest motivations for successful people in this country is the thought that they may have something to leave their children, and that is a very commendable vision. I hope that one day I shall have something to leave my children, but it will be through hard work; it will not be through sitting back and following the politics of fear and envy—

Mr. Campbell-Savours: Do not be silly.

Mr. Dickens: It is not being silly; it is being absolutely realistic. This needs to be said. Those who create the wealth are the people who create the jobs. If they create jobs, there is more work for everybody and more wealth for their families. The bigger the cake, the bigger the slices to be picked up from that cake, making the country a better place in which to live and work. Why should these people not have something to leave to their children, without savage taxation?
Is it not the Conservative party that has looked after the people on the workshop floor, given them the chance to own shares in the company in which they work? Is it not the Conservative party that has helped council tenants to own their own homes? Is it not the Conservative party that wants children to be able to ascend the ladder of excellence and attain education beyond the means of their parents through scholarships? Those are the sorts of things that the Labour party ought to be doing for the disadvantaged. We are now doing them, and that is precisely why the nation keeps returning Conservative Governments—because we represent all classes of people.
I do not want to be too mischievous, but it is absolutely right for people to create wealth and jobs. It is right that they should be able to leave something to their children without suffering savage taxation. The wealthy will always pay the lion's share, whether it is the community charge, direct taxation or anything else. [Laughter.] Hon. Gentlemen laugh, but I must remind them that 50 per cent. of the community charge comes from the taxpayers, and the highest taxpayers are the wealthy. And 25 per cent. of the community charge comes from industries, which are also taxpayers. It is they who are creating wealth and jobs.
All this nonsense from the Opposition, using the word "wealth" as a dirty word, is absolutely disgraceful and they do themselves no favours whatsoever.
This clause is most important. It gives people that added motivation, when they believe that perhaps by their hard work, their labours and their toil, they can leave something to their children that will not be savagely taxed by the Treasury.

Mr. Nigel Griffiths: Clause 127 highlights the common theme of Conservative Budgets

over the past nine years—nine years that have seen the burden of taxation increased for the average citizens of the country to give them an incentive to work harder, while during the same period the rich and the super-rich have had their taxes reduced to give them the same so-called incentive. Taxes on gifts and death duties have been lowered in successive Budgets to reward the wealthy and the well-heeled. Tax thresholds have been raised, tax rates have been lowered, aggregation periods have been reduced and the richest individuals have been enabled by the Conservatives to hand over large sums of money to others and to pay no tax at all if the gout does not claim them within seven years.
With clause 127 inheritance tax has been fixed at a single rate of 40 per cent. while the threshold has been raised by £20,000. The striking feature of clause 127 is the benefit that it confers on the really wealthy. A millionaire claiming no special reliefs or exemptions can, as a result of that clause, confer gains on his or her heirs of £145,000 at a stroke, enough to pay 5,000 mothers child benefit for a year at the index-linked level.
The £2 million estate benefits to the tune of £345,000, sufficient to raise the pensions of 900 senior citizens in line with pay and not the lower level that the Government have set. It is hardly surprising that those with modest estates of under £200,000 gain very little from that clause. I suppose that, in the light of the philosophy that is being propounded tonight by Conservative Members, people with estates of £200,000 deserve so little help because they have been so relatively unsuccessful in comparison with the achievements of aristo-rich.
Help has been lavished on the super-rich by the Government, but a very different attitude is shown by them to those on low incomes. The relatives of the rich are being encouraged to even greater dependency on the fruits of labours to which they have made no contribution, while those on social security or housing benefit are having their incomes forcibly reduced by the Government and, according to the Secretary of State for Social Services and the Government, their so-called dependency on the state reduced at the same time.
We have here a paradox where the Government are seeking to support the rich and the super-rich by making sure that relatives who have contributed so little gain so much from efforts towards which they have contributed nothing and in which they have made no investment, while others, many of whom have worked for the majority of their adult lives, receive from the Government not more but less. They have seen their pensions and their entitlement to benefits to which they have contributed reduced.
That is the nub of the clause and indeed, of the Budget. It is particularly important that we should reject clauses 127 and 128 because they are announcing a philosophy which is alien to the people of Britain. It is a philosophy that says that those people who have built up or inherited wealth, by whatever means, should be entitled to retain it. That is a philosophy that is not endorsed by many countries.
As the Financial Times has revealed, and as my hon. Friends have said and as has been conceded by Conservative Members this evening, the top of the OECD league in ensuring that wealth is taxed is one of the most successful economies—Japan. In Germany more is done to tax inherited wealth than in Britain. Those countries are doing more than ever to ensure that wealth is not passed


on from generation to generation. but is ploughed back into wealth—creating enterprises, ensuring that fresh blood has the chance to use the money. But the Government are seeking to ensure that it is passed on in a moribund fashion—a fashion that died out many years ago. It is the corpse of a policy that has been resurrected and it will reap a bitter fruit for the Government, and an even more bitter one for the country.

Mr. Chris Smith: We have had a most interesting debate on clause 128, and the allied issues that lie at the heart of clause 127. Our deliberations have been given that added intellectual edge and zest by the hon. Member for Littleborough and Saddleworth (Mr. Dickens).
First let me deal specifically and briefly with the matters enshrined in clause 128. Is is sad that the Paymaster General is not here to contribute to the discussion, because in another incarnation he has an interest in the provisions of clause 128. It should not take a genius to work out which political party is likely to benefit most from the clause. Because it is the Conservative party, we shall certainly divide the Committee.

Mr. Beith: In a spirit of genuine inquiry, may I ask the hon. Gentleman whether he believes that the principle of the exemption with which clause 128 deals, and which was put in place by a Labour Government, should be retained? What is his argument for not correcting what the Government regard as an anomaly?

Mr. Smith: The anomaly is that political parties are treated differently from charities. While I accept some of the arguments which the hon. Member for Berwick-upon-Tweed (Mr. Beith) made about the value of political work, and especially the voluntary work which goes into political activity, I do not believe that political parties should be equated exactly with charities. That is why we think that the distinction should remain.
The matters in clause 127 have formed the principal subject of the debate on clause 128. It is worth noting that the provisions of clause 127 increase the threshold for the application of inheritance tax by six times the amount required by indexation. The accumulation of all rates at 40 per cent., while putting some people at a marginally higher rate, will mean that most people will pay radically less. May I point out to the hon. Member for Littleborough and Saddleworth that that happens against a background where the top 1 per cent. still earn one quarter of all private wealth and the bottom half share between them just 4 per cent. of all private wealth?

Mr. Dickens: Perhaps the hon. Gentleman would like to inform the House which of those two sections provides the jobs.

Mr. Smith: I could certainly tell the hon. Gentleman which of those two proportions provides the talent, the effort, the work and the labour which goes into making goods and producing the wealth of the country. The hon. Gentleman said that wealth is regarded by the Opposition as a dirty word. No, it is not. It is the misdirection of wealth which is regarded by us as reprehensible, and the distinction which I have just outlined represents a maldistribution.
The cutting of the top rate of inheritance tax to 40 per cent. will give those who are already wealthy an even greater boost. Only 5,200 taxpayers—fewer than one in 5,000—paid inheritance tax at rates above 40 per cent. last

year on estates with an average value of £475,000. Assuming that a similar number would have paid the top rates of inheritance tax in the current financial year, the average gain from the cut in inheritance tax will be nearly £29,000. That is a direct gift from the Budget to those who are already wealthy.
For confirmation of that I turned to that well-known Socialist periodical, the Financial Times. In its analysis of the Budget of 16 March the Financial Times said:
The outstanding feature of the Chancellor's proposals is the benefit it gives the really wealthy. A millionaire, claiming no special reliefs or exemptions, gains—or rather his or her heirs gain—£145,000 at a stroke. The £2 million estate benefits to the extent of £345,000.
The newspaper also drew attention to the benefits that the Conservative Government had given over the past eight years to people passing on gifts. It said that just about every Budget
has seen some easing of the burden of death and gift taxes: raised thresholds; lower rates; reduced aggregation periods; gifts between individuals totally relieved of tax if they survive seven years; finally, this change to a single rate of tax of 40 per cent.
The evidence is clear that the real beneficiaries of clause 127 will be the extremely wealthy.
9.45 pm
The people who benefit will already be taking advantage of a wide range of mechanisms, especially the establishment of a variety of trusts that provide the possibility of planning to avoid inheritance tax. It is ineresting to note that tax avoidance experts say of this provision in the Budget that people should not simply take the gift that the Chancellor is giving them because it may be removed by a change of Government. I can happily assure them that they are correct in that assumption.
The basic principle of inheritance tax has been an interesting part of the debate. It was first mentioned by my hon. Friend the Member for Workington (Mr. Campbell-Savours) in an interesting and provocative speech.

Mr. Win Griffiths: My hon. Friend might be interested to know that our hon. Friend the Member for Workington (Mr. Campbell-Savours) is more fastidious and rigorous than God himself in his beliefs on inheritance. Leviticus chapter 25—I hope that Conservative Members will look it up at the end of the day—recommends that wealth should be inherited for seven generations, but at the seventh the family should be divested of it all and start again.

Mr. Smith: I commend my hon. Friend on his learning. It is interesting that my hon. Friend the Member for Workington is more severe than the Old Testament in this respect.
I liked the formulation of my hon. Friend the Member for Western Isles (Mr. Macdonald) better. He said that we must acknowledge the ties of kinship and of family but strike the right balance. He thought that the Government proposals had not struck the right balance.

Mr. Morgan: Does my hon. Friend agree that the philosophical cleavage between the silver spoonists on the Conservative side who believe in inheritance, and us, who believe that genuine competitive entrepreneurism can start only from a level playing field can best be summarised by saying that we are the real followers of Alderman Roberts


of Grantham and believe that necessity is the mother of invention; they believe that necessity is the invention of mother.

Mr. Smith: My hon. Friend is right as usual. The Government and Conservative Members have made much in the debate of their proposals for income tax changes and of the incentive effect of being able to keep more of the wealth that one earns. There may conceivably be some justification in some of the principles that underlie those comments about this so-called enterprise culture. There can be no such justification for saying that someone who benefits from the fruits of his or her efforts should be able to pass that on to members of a subsequent generation who have not, by their efforts, contributed to the making of that wealth. The balance that the Government have been attempting to strike in clause 127 cannot be justified.
The hon. Member for Stamford and Spalding (Mr. Davies) constructed an intellectual gem when he said that human beings are at times selfish and at time selfless. As an observer of human nature, I feel that that must be accurate. The Conservative Government have, over the past few months, forgotten the selfless side of human nature. The Budget has spoken entirely to the selfish. The top rate tax reductions were bad enough. These adjustments in inheritance tax rates are even worse. In asking my right hon. and hon. Friends to vote against clause 128, I presume that we are, by so doing, clearly demonstrating our fervent opposition to clause 127.

Mr. Lilley: I apologise to the Opposition if they lost the opportunity to vote on clause 127 as a result of my natural, although unexpected, reticence and the procedural uncertainties.
Benjamin Franklin said:
nothing can be said to be certain, except death and taxes.
Death has always held a peculiar attraction for the tax man, I suppose because the dead are the one group of taxpayers who cannot complain. The desire to bequeath an inheritance to one's heirs is one of the most powerful ambitions that motivate people. It is the objective that drives men to build up businesses, accumulate capital, build and improve houses and even to invest, as my hon. Friends the Members for Fulham (Mr. Carrington) and for Stamford and Spalding (Mr. Davies) have said so eloquently.
It is foolish to blunt such a potentially creative force by punitive inheritance taxes. If people know that the majority of their lifetime's effort will go not to their chosen heirs or causes but to the state, many will be discouraged from even starting on the path of enterprise. Others will sell out prematurely and enjoy the fortune themselves or devote themselves to the time-consuming process of tax avoidance. Even those who are insensitive to the prospect of inheritance tax may realise that their businesses will die with them when the executors are obliged to break into its assets to pay punitive death duties.
Those are the reasons why we have sought to ease punitive death taxes in this Budget. We have taken two further steps this year. First, we have substantially raised the threshold at which the tax is paid. Simple indexation would have required lifting the threshold from £90,000 to £94,000. Instead, we raised it by 22 per cent. to £110,000. This will take a quarter of all estates out of tax entirety.
This follows a 27 per cent. increase in the threshold last year, so I remind my hon. Friends that in two years we have increased the threshold by 56 per cent.—substantially ahead even of the increase in house prices. Hon. Members who object to that presumably wish to bring more and more estates into taxation.
Secondly, we have scrapped the previous four rates of tax, ranging from 30 per cent. to 60 per cent., and replaced them with a simple flat rate of 40 per cent. The effect of that, plus the rise in the threshold, will be to reduce the burden of taxation on all estates. Since 1979 we have reduced the top rate of tax from 75 per cent. to 40 per cent., and simplified the structure by moving from no fewer than 14 different rates to just one.

Mr. Morgan: Is the Minister claiming that now that people have much less incentive to engage in tax evasion the number of accountants in this country will decline sharply as there is no longer need for them?

Mr. Lilley: Last week I spoke at the Institute of Taxation, and received a rather frosty reception from the president on account of the Chancellor's remark that that was the one profession that we hoped did badly out of the Budget. Of course, we believe that such professionals will find interesting and valuable uses for their talents elsewhere.
The hon. Member for Wrexham (Dr. Marek) quoted from the speech that I made to the Institute of Taxation, and mentioned my remarks about Father Navarette and his wise words on the disincentive effect of punitive taxation on income. The hon. Gentleman imagined that the reductions in taxation and the loopholes that had been left would mean that we would not succeed in getting much income from inheritance tax, and that the changes that we have made would reduce revenue.
It is worth noting that since we have cut the top rate of taxation from 75 per cent. to 60 per cent., as well as raising thresholds so that 96 per cent. of all estates are free from duty altogether, the revenue from the duty on estates has risen by about one half in real terms. When I first discovered that, I asked my officials whether we had created an incentive for people to die early. Hon. Members will be pleased to know that that probably is not the case. The buoyant yield of inheritance tax reflects the rise in asset values, the growing prosperity of the country, the increase in the number of businesses and, of course, the delayed effect of spouse exemption—in other words, the estates which were relieved from taxation when they were passed on to a spouse are now coming into taxation when the surviving spouse, usually the widow, passes on.
Although, as the hon. Member for Cardiff, West (Mr. Morgan) implied, many people went to considerable lengths to avoid paying inheritance tax, the incentive to do so certainly has been reduced, and is further reduced in the Budget. With a growing economy and an enterprise culture, we are confident that the base of inheritance tax will be buoyant in future. We welcome, as did my hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) in his valuable speech, the fact that nearly two thirds of people own their own homes. Consequently more people are able to leave their homes to their children. As more people acquire shares, they will have investments to bequeath to their heirs. As more people build up businesses that nearly two thirds of people own their own homes. Consequently more people are able to leave their


homes to their children. As more people acquire shares, they will have investments to bequeath to their heirs. As more people build up businesses, they will leave family firms.
The hon. Member for Workington (Mr. Campbell-Savours), for whose integrity I have great respect and who is the sea-green incorruptible of the Labour party, made an interesting point. He intervened in the speech of my right hon. Friend the Chief Secretary to say that, in his view, the very process of inheritance undermines the spirit of enterprise. He is the living proof to the contrary. The fact that he renounced the prospect of inheritance did not stop him setting up a successful small business, and I pay tribute to him.

Mr. Lilley: The hon. Gentleman is an example to us all in this respect as in so many others, but he was not deflected from that path by the possibility of obtaining from his parents a substantial inheritance which he chose voluntarily to renounce. The hon. Gentleman asserted that we suffered relative to Japan in that Japan, in his view, had higher inheritance taxes. Until this year, if one left £500,000 to one's heirs in this country, one would have had to pay more tax than in Japan. Similarly, if one left £1 million in this country, more tax would have had to be paid than in Japan. The hon. Member for Edinburgh, South (Mr. Griffiths) referred to a person leaving £2 million. Until this year, one would have had to pay more tax on that amount than in Japan. Since the Budget, the position of those who leave £2 million is slightly better in this country than in Japan. However, I do not believe that the hon. Gentleman will maintain that Britain has benefited in the past from our high inheritance tax compared with Japan.
10 pm
Small businesses that are passed on to heirs pay considerably less inheritance tax than is paid in Japan because of the special exemptions that we make. We are particularly concerned to ensure that the growth in prosperity of family businesses is not threatened by the burden of inheritance tax. The abolition in 1986 of capital transfer tax on lifetime giving enables family businesses to be passed on to the next generation tax-free.

Mr. Morgan: Is the Minister willing to accept that 99 per cent. of all independent commentators have attributed much of the superior economic growth performances of both Germany and Japan since the second world war, compared with this country, to the fact that to an extraordinary extent there has been continuity of wealth in this country, which has been associated with very slow economic growth? Japan and Germany had to start afresh in 1948. Much of their greater wealth has been created by first generation entrepreneurs.

Mr. Lilley: I do not know which economic commentators the hon. Gentleman employs, but he should employ new ones. Germany has the lowest inheritance tax of any of the countries that I have considered, if wealth is passed on to a close relative or to a child. This country has far fewer family businesses than Germany and Japan. We want to reverse that trend.
If tax is payable, the effective rate for a family business that enjoys 50 per cent. business property relief is less than 20 per cent. That is one of the lowest rates in any major Western economy. The desire to leave something to one's

children and grandchildren, to friends and to causes that one supports is both natural and altruistic and a penal burden should not be imposed.
We do not believe in a one-generation society—each generation starting anew with nothing. Furthermore, it is not realistic. Each generation stands on the shoulders of its predecessors. As a society, we inherit the wealth, technology and infrastructure that have been created by previous generations. It is only reasonable that individuals should also have the right to pass on inherited wealth to their heirs as they choose.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to clause 128. I welcome his support for it and the support of his party in 1975 when the unfortunate anomaly was created. It is right and reasonable that we should recognise the right of individuals to pass money to political parties, if they so wish.
Several hon. Members have said that the only beneficiary of this change will be my right hon. Friend the Paymaster General, wearing his other hat. When I was chairman of the Bow Group, the right hon. Member for Leeds, East (Mr. Healey) was trying to introduce a wealth tax. I met my counterpart, the then chairman of the Fabian Society, now Lord Ponsonby, who told me that he had just been lobbying the right hon. Member for Leeds, East because he feared for the finances of the Fabian Society if it were unable to benefit from the inheritances that it received. He asked me to support him. I had to say that, as fas as I knew, the Bow Group had never received any inherited money and that it was not in that fortunate position.
This change stands to benefit all sides of the political spectrum, and I commend it to the House.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 259, Noes 192.

Division No. 294]
[10.4 pm


AYES


Adley, Robert
Bright, Graham


Aitken, Jonathan
Brittan, Rt Hon Leon


Alison, Rt Hon Michael
Brooke, Rt Hon Peter


Allason, Rupert
Brown, Michael (Brigg &amp; Cl't's)


Amess, David
Browne, John (Winchester)


Amos, Alan
Bruce, Ian (Dorset South)


Arbuthnot, James
Bruce, Malcolm (Gordon)


Arnold, Tom (Hazel Grove)
Buchanan-Smith, Rt Hon Alick


Ashdown, Paddy
Burt, Alistair


Atkins, Robert
Butcher, John


Atkinson, David
Butler, Chris


Baker, Rt Hon K. (Mole Valley)
Butterfill, John


Baker, Nicholas (Dorset N)
Campbell, Menzies (Fife NE)


Baldry, Tony
Carlile, Alex (Mont'g)


Banks, Robert (Harrogate)
Carlisle, John, (Luton N)


Batiste, Spencer
Carlisle, Kenneth (Lincoln)


Beaumont-Dark, Anthony
Carrington, Matthew


Beith, A. J.
Carttiss, Michael


Bellingham, Henry
Cash, William


Bennett, Nicholas (Pembroke)
Chapman, Sydney


Bevan, David Gilroy
Chope, Christopher


Biffen, Rt Hon John
Churchill, Mr


Blackburn, Dr John G.
Clark, Dr Michael (Rochford)


Blaker, Rt Hon Sir Peter
Clark, Sir W. (Croydon S)


Bonsor, Sir Nicholas
Conway, Derek


Boscawen, Hon Robert
Coombs, Anthony (Wyre F'rest)


Boswell, Tim
Coombs, Simon (Swindon)


Bottomley, Mrs Virginia
Couchman, James


Bowden, A (Brighton K'pto'n)
Cran, James


Bowis, John
Critchley, Julian


Boyson, Rt Hon Dr Sir Rhodes
Currie, Mrs Edwina


Brandon-Bravo, Martin
Curry, David


Brazier, Julian
Davies, Q. (Stamf'd &amp; Spald'g)






Davis, David (Boothferry)
Kirkwood, Archy


Day, Stephen
Knapman, Roger


Devlin, Tim
Knight, Greg (Derby North)


Dickens, Geoffrey
Knight, Dame Jill (Edgbaston)


Douglas-Hamilton, Lord James
Knowles, Michael


Dover, Den
Knox, David


Dunn, Bob
Lamont, Rt Hon Norman


Durant, Tony
Lang, Ian


Fallon, Michael
Latham, Michael


Farr, Sir John
Lawrence, Ivan


Favell, Tony
Lester, Jim (Broxtowe)


Fearn, Ronald
Lightbown, David


Fenner, Dame Peggy
Lilley, Peter


Field, Barry (Isle of Wight)
Livsey, Richard


Finsberg, Sir Geoffrey
Lloyd, Sir Ian (Havant)


Forman, Nigel
Lloyd, Peter (Fareham)


Forsyth, Michael (Stirling)
Lord, Michael


Forth, Eric
Lyell, Sir Nicholas


Fox, Sir Marcus
Macfarlane, Sir Neil


Franks, Cecil
Maclean, David


Freeman, Roger
McLoughlin, Patrick


French, Douglas
McNair-Wilson, M. (Newbury)


Fry, Peter
McNair-Wilson, P. (New Forest,


Gardiner, George
Madel, David


Garel-Jones, Tristan
Major, Rt Hon John


Gill, Christopher
Malins, Humfrey


Goodhart, Sir Philip
Mans, Keith


Goodlad, Alastair
Maples, John


Goodson-Wickes, Dr Charles
Marland, Paul


Gorman, Mrs Teresa
Marshall, John (Hendon S)


Gow, Ian
Marshall, Michael (Arundel)


Gower, Sir Raymond
Martin, David (Portsmouth S)


Grant, Sir Anthony (CambsSW)
Mates, Michael


Gregory, Conal
Maude, Hon Francis


Griffiths, Sir Eldon (Bury St E')
Mawhinney, Dr Brian


Griffiths, Peter (Portsmouth N)
Maxwell-Hyslop, Robin


Grist, Ian
Mayhew, Rt Hon Sir Patrick


Ground, Patrick
Mellor, David


Grylls, Michael
Miller, Hal


Gummer, Rt Hon John Selwyn
Mills, Iain


Hamilton, Hon Archie (Epsom)
Mitchell, Andrew (Gedling)


Hampson, Dr Keith
Mitchell, David (Hants NW)


Hannam, John
Moate, Roger


Hargreaves, A. (B'ham H'll Gr')
Montgomery, Sir Fergus


Hargreaves, Ken (Hyndburn)
Morrison, Hon Sir Charles


Harris, David
Moss, Malcolm


Haselhurst, Alan
Moynihan, Hon Colin


Hawkins, Christopher
Mudd, David


Hayes, Jerry
Neale, Gerrard


Hayhoe, Rt Hon Sir Barney
Nelson, Anthony


Hayward, Robert
Neubert, Michael


Heseltine, Rt Hon Michael
Nicholls, Patrick


Hicks, Robert (Cornwall SE)
Nicholson, David (Taunton)


Higgins, Rt Hon Terence L.
Nicholson, Emma (Devon West)


Hill, James
Onslow, Rt Hon Cranley


Hind, Kenneth
Oppenheim, Phillip


Hogg, Hon Douglas (Gr'th'm)
Page, Richard


Holt, Richard
Paice, James


Howard, Michael
Patnick, Irvine


Howarth, G. (Cannock &amp; B'wd)
Patten, John (Oxford W)


Howell, Rt Hon David (G'dford)
Pattie, Rt Hon Sir Geoffrey


Hughes, Robert G. (Harrow W)
Pawsey, James


Hunt, David (Wirral W)
Porter, Barry (Wirral S)


Hunter, Andrew
Porter, David (Waveney)


Irvine, Michael
Portillo, Michael


Irving, Charles
Price, Sir David


Jack, Michael
Raffan, Keith


Jackson, Robert
Redwood, John


Janman, Tim
Renton, Tim


Jessel, Toby
Rhodes James, Robert


Johnson Smith, Sir Geoffrey
Riddick, Graham


Jones, Gwilym (Cardiff N)
Ridley, Rt Hon Nicholas


Jones, Robert B (Herts W)
Ridsdale, Sir Julian


Jopling, Rt Hon Michael
Roberts, Wyn (Conwy)


Kellett-Bowman, Dame Elaine
Rossi, Sir Hugh


Kennedy, Charles
Rost, Peter


Key, Robert
Rowe, Andrew


Kilfedder, James
Rumbold, Mrs Angela


King, Roger (B'ham N'thfield)
Ryder, Richard


Kirkhope, Timothy
Sayeed, Jonathan





Shaw, David (Dover)
Thompson, Patrick (Norwich N)


Shaw, Sir Michael (Scarb')
Thorne, Neil


Shelton, William (Streatham)
Thurnham, Peter


Shephard, Mrs G. (Norfolk SW)
Townend, John (Bridlington)


Shepherd, Colin (Hereford)
Twinn, Dr Ian


Shepherd, Richard (Aldridge)
Waddington, Rt Hon David


Shersby, Michael
Walker, Bill (T'side North)


Sims, Roger
Wallace, James


Smith, Sir Dudley (Warwick)
Waller, Gary


Smith, Tim (Beaconsfield)
Ward, John


Speller, Tony
Widdecombe, Ann


Spicer, Sir Jim (Dorset W)
Wiggin, Jerry


Spicer, Michael (S Worcs)
Winterton, Mrs Ann


Squire, Robin
Yeo, Tim


Stern, Michael



Stewart, Allan (Eastwood)
Tellers for the Ayes:


Stewart, Andy (Sherwood)
Mr. Mark Lennox-Boyd and


Taylor, Ian (Esher)
Mr. Stephen Dorrell.


Taylor, Matthew (Truro)





NOES


Adams, Allen (Paisley N)
Fisher, Mark


Allen, Graham
Flynn, Paul


Anderson, Donald
Foot, Rt Hon Michael


Archer, Rt Hon Peter
Foster, Derek


Ashton, Joe
Foulkes, George


Banks, Tony (Newham NW)
Fraser, John


Barnes, Harry (Derbyshire NE)
Fyfe, Maria


Barron, Kevin
Galbraith, Sam


Battle, John
Galloway, George


Beckett, Margaret
Garrett, John (Norwich South)


Bell, Stuart
Garrett, Ted (Wallsend)


Benn, Rt Hon Tony
George, Bruce


Bennett, A. F. (D'nt'n &amp; R'dish)
Gilbert, Rt Hon Dr John


Bermingham, Gerald
Golding, Mrs Llin


Bidwell, Sydney
Gordon, Mildred


Blair, Tony
Gould, Bryan


Blunkett, David
Graham, Thomas


Boateng, Paul
Griffiths, Nigel (Edinburgh S)


Boyes, Roland
Griffiths, Win (Bridgend)


Bradley, Keith
Grocott, Bruce


Bray, Dr Jeremy
Hardy, Peter


Brown, Gordon (D'mline E)
Harman, Ms Harriet


Brown, Nicholas (Newcastle E)
Heller, Eric S.


Buchan, Norman
Henderson, Doug


Buckley, George J.
Hinchliffe, David


Caborn, Richard
Hogg, N. (C'nauld &amp; Kilsyth)


Callaghan, Jim
Holland, Stuart


Campbell, Ron (Blyth Valley)
Home Robertson, John


Campbell-Savours, D. N.
Howarth, George (Knowsley N)


Canavan, Dennis
Howell, Rt Hon D. (S'heath)


Clark, Dr David (S Shields)
Hoyle, Doug


Clarke, Tom (Monklands W)
Hughes, John (Coventry NE)


Clay, Bob
Hughes, Robert (Aberdeen N)


Clwyd, Mrs Ann
Hughes, Roy (Newport E)


Cohen, Harry
Hughes, Sean (Knowsley S)


Coleman, Donald
Illsley, Eric


Cook, Robin (Livingston)
Ingram, Adam


Corbett, Robin
Janner, Greville


Cousins, Jim
Jones, Ieuan (Ynys Môn)


Cox, Tom
Jones, Martyn (Clwyd S W)


Cryer, Bob
Lambie, David


Cummings, John
Lamond, James


Cunliffe, Lawrence
Leighton, Ron


Cunningham, Dr John
Lestor, Joan (Eccles)


Darling, Alistair
Lewis, Terry


Davies, Rt Hon Denzil (Llanelli)
Litherland, Robert


Davies, Ron (Caerphilly)
Lloyd, Tony (Stretford)


Davis, Terry (B'ham Hodge H'I)
Lofthouse, Geoffrey


Dixon, Don
Loyden, Eddie


Dobson, Frank
McAllion, John


Doran, Frank
McAvoy, Thomas


Douglas, Dick
Macdonald, Calum A.


Dunnachie, Jimmy
McFall, John


Eadie, Alexander
McKay, Allen (Barnsley West)


Eastham, Ken
McKelvey, William


Ewing, Harry (Falkirk E)
McLeish, Henry


Fatchett, Derek
McNamara, Kevin


Faulds, Andrew
McTaggart, Bob


Field, Frank (Birkenhead)
McWilliam, John






Madden, Max
Robertson, George


Mahon, Mrs Alice
Robinson, Geoffrey


Marek, Dr John
Rogers, Allan


Marshall, Jim (Leicester S)
Rooker, Jeff


Martlew, Eric
Ross, Ernie (Dundee W)


Maxton, John
Rowlands, Ted


Meale, Alan
Ruddock, Joan


Michael, Alun
Salmond, Alex


Michie, Bill (Sheffield Heeley)
Sedgemore, Brian


Millan, Rt Hon Bruce
Sheerman, Barry


Mitchell, Austin (G't Grimsby)
Sheldon, Rt Hon Robert


Moonie, Dr Lewis
Shore, Rt Hon Peter


Morgan, Rhodri
Short, Clare


Morley, Elliott
Skinner, Dennis


Morris, Rt Hon A. (W'shawe)
Smith, Andrew (Oxford E)


Morris, Rt Hon J. (Aberavon)
Smith, C. (Isl'ton &amp; F'bury)


Mowlam, Marjorie
Smith, Rt Hon J. (Monk'ds E)


Mullin, Chris
Snape, Peter


Murphy, Paul
Soley, Clive


Nellist, Dave
Spearing, Nigel


O'Brien, William
Stott, Roger


O'Neill, Martin
Strang, Gavin


Orme, Rt Hon Stanley
Straw, Jack


Paisley, Rev Ian
Taylor, Mrs Ann (Dewsbury)


Parry, Robert
Turner, Dennis


Patchett, Terry
Wall, Pat


Pendry, Tom
Wardell, Gareth (Gower)


Pike, Peter L.
Wareing, Robert N.


Powell, Ray (Ogmore)
Welsh, Andrew (Angus E)


Primarolo, Dawn
Welsh, Michael (Doncaster N)


Quin, Ms Joyce
Williams, Rt Hon Alan


Radice, Giles
Williams, Alan W. (Carm'then)


Randall, Stuart
Winnick, David


Redmond, Martin
Wise, Mrs Audrey


Rees, Rt Hon Merlyn



Reid, Dr John
Tellers for the Noes;


Richardson. Jo
Mr. Frank Haynes and


Roberts, Allan (Bootle)
Mr. Frank Cook.

Question accordingly agreed to.

Clause ordered to stand part of the Bill.

Clause 42

HOME IMPROVEMENT LOANS

Mr. Archy Kirkwood: I beg to move amendment No. 10, in page 43, line 41, at end insert
'or the loan is made to a registered disabled person.'.

The First Deputy Chairman: With this we may take amendment No. 11, in page 44, line 14, after 'April 88' insert
'or the loan is made to a registered disabled person.'.

Mr. Kirkwood: Clause 42 raises some wide-ranging and important issues. The amendments seek to focus the debate on a more finely defined issue—the disabled. Amendment No. 10 is fairly transparent in its purpose: it seeks to retain tax relief on home improvement loans for disabled people. The justification is simply that disabled people need to adapt their homes to meet the needs of their disabilities.
It goes without saying that the disabled are a particularly vulnerable section of our community. Opposition Members would argue that some of them have suffered especially severely at the hands of the present Government, particularly in relation to the recent social security changes. The old system of supplementary benefit, which brought in its train a system of regular additional payments and single payments as a legal requirement, allowed disabled people to underpin their income and to receive substantial support. The provisions brought in at the beginning of last month changed that system. As a

result of the new regime of income support, the severely disabled in particular have suffered considerable financial loss.
My amendment refers directly to registered disabled persons, although I should like to talk about a slightly wider group. The term "registered disabled person" does not embrace the needs of the elderly or, necessarily, those of the mentally handicapped or mentally ill. A large group of people could benefit from the amendment if it were accepted. There are, however, problems of definition in making it clear to whom we are trying to give the concession. The simplest option is probably to restrict debate to the words of the amendment, which embrace only registered disabled persons. The wording has a statutory meaning which leaves no doubt about who would qualify for exemption.
I do not think that the Government can base an argument on the costs that the amendment would involve. The tax forgone by the Treasury would be restricted, because a limited number of people would qualify, and only a relatively small proportion of that group would consider physical adaptations to their homes of benefit to them as individuals.
The cost of the amendment would be modest, but I submit that the effect of obtaining the relief—the ability to undertake such improvements—could transform the quality of life for those taking advantage of the measure. In my experience, few disabled people living outside custom-built institutionalised premises could not benefit from some physical alteration to their homes. There is a case for a coherent Government policy on disabled people to be applied across various Departments. It is only recently that we have begun to appreciate how the quality of life for people with disabilities can be transformed by simple changes to their homes.

[MISS BETTY BOOTHROYD in the Chair.]

I have personal experience of taking part in a stunt organised by the Young Liberals at the Liberal assembly in 1986. It consisted of putting me in a wheelchair for the best part of a day and taking me through the process of staying in an hotel and taking part in the conference. That had a salutary effect on my perception of some of the problems faced by people in wheelchairs in their homes and their ordinary everyday lives.

There is a real need for the Government to adopt a coherent approach and to accept the need to change the perceptions of those of us who enjoy good health and a full life. We have a real fight on our hands and a campaign is needed to change people's attitudes. The Government have an important role to play in that. The change that I am suggesting in the amendment would, if it were accepted, play an important part in that coherent Government policy.

If the Government resist the amendment, they will be liable to the charge that their timing is to be deplored. I say that because the Committee will know that the Office of Population Censuses and Surveys expects to publish the results of a survey of disabled people in a series of reports to be issued later this year. That survey will establish the need and extent to which care and support are required. In the past, Government Departments have been labouring under the handicap of not knowing the true extent of the needs of disabled people. Later this year that will not be the case.

I believe that the information that the OPCS provides will serve to inform us about the extent to which ramps, wider doors, lifts and improved access for disabled people can help. It will show the extent to which extra rooms for carers added to homes, or to which bathrooms or single-storey accommodation can prevent institutionalisation. That is all in the area of constructive improvement and does not begin to embrace the improvements that can be brought about by electronic aids which can now be built into improvements in and adaptations to disabled people's homes.

There are other aspects of Government policy that already recognise the needs of the disabled. I draw the Committee's attention to the report on community care recently published by Sir Roy Griffiths. That recognises the need for social work departments to provide tailor-made support to enable people to continue to live at home. The report said:
If community care means anything, it is that responsibility is placed as near to the individual and his or her carers as is possible.
if community care is to be a reality and more than just a slogan to which the Government pay lip service, the terms of the amendment should be accepted. Our suggestions can make a positive contribution.

There are other examples of the way in which the distinct nature of building work for disabled people can make a contribution. That has been recognised by Governments in a number of ways. For example, improvement grants have always been paid to the disabled at priority rates. Disabled people are allowed to have charges waived for planning and building control applications and perhaps most significantly, disabled people have always been eligible for zero rating for value added tax on building costs. Therefore, there are clear precedents. Deliberate and coherent concessions have been made to try to improve the special needs of disabled people.

My argument to the Committee in relation to these amendments is that the key difference for the disabled person when considering home improvements is that they are necessary. They are not a matter for exercising choice, which would be the case for able-bodied members of the community. The interest relief that I wish to sustain in the amendment is important to disabled people. To remove the relief would impose an unnecessary financial burden on the most vulnerable members of society.

Mr. Butterfill: I have listened with great interest and some sympathy to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). Many of us would agree that the special needs of the disabled should be accommodated wherever possible. On the other hand, I have to say that there are many other groups that we could include in the special pleading made by the hon. Gentleman. No doubt some of us will turn to that later this evening.
What is incontrovertible, however, is that there has been a lot of abuse of loans for the purpose of home improvements. The hon. Gentleman's amendment would carry greater weight if it proposed not only that the exemption should be for disabled persons, but arising out of their special needs as disabled persons. There is otherwise a possibility of some abuse by disabled persons,

as there is by other members of the community in the same way. For that reason, I feel unable to support the amendment.

Mr. Morgan: The answer to abuse is to correct the abuse by asking for invoices, so that a grant depends on the submission of audited invoices for the work done.

Mr. Chris Smith: On behalf of the official Opposition, I welcome the amendments tabled by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood).
The hon. Member for Bournemouth, West (Mr. Butterfill) mentioned two objections to the amendment, the first being that many others might fall into a special need category. That is precisely why we shall be debating on clause stand part some of the wider issues surrounding the removal of relief from home improvement loans.
The hon. Gentleman also mentioned the problem of abuse. That point has been answered excellently by my hon. Friend the Member for Cardiff, West (Mr. Morgan) by saying that one tackles abuse by tackling specific abuses rather than removing the relief altogether.

Mr. Butterfill: With regard to what the hon. Member for Islington, South and Finsbury (Mr. Smith) and his hon. Friend the Member for Cardiff, West (Mr. Morgan) have just said, the point could be even better tackled by an amendment providing that the relief would be directed not just to disabled persons, but to their special needs. That is my objection to the wording of the amendment.

Mr. Smith: The hon. Gentleman fails to pick up the point, which I shall deal with later in more detail, that when addressing abuse one addresses distinctly those areas where abuse is likely to occur. There is very little evidence that people with disabilities have been abusing the home improvement tax relief system. Indeed, that is one reason why I certainly wish to support the amendment tabled by the hon. Member for Roxburgh and Berwickshire.
I support the amendment for three other reasons. First, the essential nature of the improvement work carried out by those with disabilities reflects their need for extra ramps, wider doors, lower working surfaces, and wider internal doorways in their dwellings. The sort of improvements that are carried out are essential for them to lead a proper and easy life. Secondly, many of them face a financial necessity in carrying out improvement work, which to a certain extent is eased by the prospect of tax relief being available. Thirdly, it is easy to check and monitor such a system. It is administratively easy because of the system of registration of disabled persons. The amendments would easily cope with that. The Government will be hard put to find cogent arguments against them. I hope that they will accept them.

Mr. Wigley: I apologise, Miss Boothroyd, for arriving late. I understand that earlier the timing went a little skew-whiff.
I very much support the amendment. Disabled people should have the maximum provision possible. I know, from my experience on the all-party disablement group and from constituency cases, the sort of help that can be made available and which makes a material difference. There is, for example, tax relief. It may not make a great difference to disabled people if they are not taxpayers and not in a position to get direct benefit from it, but it can make a difference to the large number of people whose incomes or benefits are taxed.
The situation of disabled people is difficult enough. We, as a family, know that the cost of disablement can be much higher than the estimates, especially when there is multiple disablement. Attendance allowance and other benefits—we welcome the new benefits—often do not go far enough towards meeting the costs of day-to-day living or leaving any money to spare, either to fund loans to undertake the work needed on a house or to accumulate capital to do that work directly.
It is clear that disabled people need to meet a greater expenditure than the average family.

Mr. Butterfill: Would it riot be an anomaly, which the hon. Gentleman would find difficult to support, if the amendment were carried and a disabled person were permitted tax relief on an extension to provide an extra bathroom but a family with young children with an equal need for a bathroom were denied that same relief?

Mr. Wigley: One can argue in favour of relief for families with young children, especially when income support is not sufficient to provide the basic facilities needed for everyday life. There are families on income support who will not pay tax whereas often disabled people, because of the nature of their income, to pay tax. Their cost of living in meeting everyday requirements is that much higher than even the costs of meeting the burdens on people with young families. I can testify to that from personal experience, but many other people, who have had the same experiences as we have but have not had the resources to meet them, can testify even more strongly.

Mr. Morgan: There is a further financial reason for making tax relief available: the adaptations which are carried out on the homes of disabled people frequently cost a lot of money and reduce the property's capital value on the open market, because they are specific to the needs of the disabled.

Mr. Wigley: That is true in some circumstances. It can work both ways. If a bathroom is needed downstairs as well as one upstairs. that can be additional, but some changes make it difficult to sell a house. I can think of one instance in my constituency when that certainly happened.
It comes back to the question how we try to help disabled families to meet their additional costs in paying for their everyday requirements. One could certainly argue that there are other ways of doing it, but since those ways are not available at present and the benefits, the specialised housing availability and the grants through the social services departments are to a large extent not available to the majority of those who need them, one has to look at what is possible. This has been a possible avenue in the past for undertaking certain work. It has been more generally available, and if it is now to be less generally available I would argue that there is still a strong case for being able to help disabled people and that they should be the last group from which one withdraws this sort of assistance.
I therefore suggest to the Committee that in making this additional provision within the exceptions to paying full income tax and giving this additional relief one is doing something that has support across the Chamber, not only in this context but in others. I hope that, if the Government cannot give a commitment to look again at this matter—if they could, I would welcome it—the entire Committee will support the amendment.

Mr. Brooke: I understand the sentiments which have informed this brief debate. These amendments would continue relief for home improvement loans to registered disabled people irrespective of the improvements carried out and of whether they were connected with the borrower's disability—a point made by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill).
This would be very arbitrary in its impact. First, many people with disabilities or special needs of one sort or another are not registered. Secondly, most improvements are irrelevant to a person's disability and it would be odd to provide relief for a loan for double glazing for a disabled person but not for someone else. Thirdly, relief is given only to the borrower and this would do nothing to help a borrower who is not disabled but has a disabled person in his or her household.
An alternative approach would be to try to construct a less arbitrary relief which would be limited to deserved improvements for the disabled. That would be a very difficult allowance to try to administer. The tax system has to operate by reference to general rules and cannot easily distinguish between particular cases.

Mr. Chris Smith: The right hon. Gentleman seems to be in the midst of arguing that because we have a system that is good but ultimately imperfect we should remove it altogether, and that we cannot have a perfect system because that would be administratively too complex. He mentioned double glazing. Does he not recognise that there are many people who, because of their disability, need better heating than other people and that the energy conservation which might become available with double glazing could be of incalculable benefit to them?

Mr. Brooke: I understand the hon. Gentleman's argument, but he is making my point for me. He is saying that there will be individual cases in which double glazing is relevant, although there may be a large number of cases in which it is not. It would be throwing on the administration in terms of the tax the decision whether double glazing was appropriate for that particular person.
The right approach here is through the grants which are available to adapt homes for disabled owners and occupants. As the consultation paper "Home Improvement Policy" makes clear, we intend that these grants should continue and be mandatory.
The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) referred to particular arrangements for VAT in a certain number of cases of disabled persons, but he implied that they were universal and applied to all such cases. That is not so; they are specifically tailored, and that underlines the point I was seeking to make.
I ask my hon. Friends to resist the amendment.

Mr. Kirkwood: That really is an unacceptable response, and fairly pathetic. The Minister is saying that it is all too complicated and difficult and would create too many bureaucratic anomalies. That is a disgraceful way to approach these things. Of course the other provisions that he referred to exist, but we are trying to get the Government to face up to the need for a coherent approach that addresses all these problems, some of which may well be complicated. Some may well be technically complicated, and of course some amendments are less than perfect. That is because we are all enthusiastic amateurs when it comes to parliamentary draftsmanship. We do not have the experience of parliamentary draftsmen.
The Minister's response was disgraceful and the lobby groups outside the House will read his reply with great interest and condemn him in the way that he so richly deserves. I hope that hon. Members will join me in the Lobby tonight.

Question put, That the amendment be made:—

The Committee divided: Ayes 91, Noes 206.

Division No. 295]
[10.45 pm


AYES


Abbott, Ms Diane
Jones, Barry (Alyn &amp; Deeside)


Ashdown, Paddy
Jones, Ieuan (Ynys Môn)


Barnes, Harry (Derbyshire NE)
Kennedy, Charles


Battle, John
Kirkwood, Archy


Beckett, Margaret
Lewis, Terry


Beith, A. J.
Lloyd, Tony (Stretford)


Bell, Stuart
McAllion, John


Benn, Rt Hon Tony
McAvoy, Thomas


Boateng, Paul
McFall, John


Boyes, Roland
McKay, Allen (Barnsley West)


Brown, Gordon (D'mline E)
McLeish, Henry


Brown, Nicholas (Newcastle E)
Madden, Max


Bruce, Malcolm (Gordon)
Mahon, Mrs Alice


Buchan, Norman
Marek, Dr John


Buckley, George J.
Marshall, Jim (Leicester S)


Campbell, Menzies (Fife NE)
Maxton, John


Campbell-Savours, D. N.
Meale, Alan


Carlile, Alex (Mont'g)
Michael, Alun


Clwyd, Mrs Ann
Moonie, Dr Lewis


Cook, Robin (Livingston)
Morgan, Rhodri


Cryer, Bob
Mowlam, Marjorie


Cummings, John
Nellist, Dave


Cunliffe, Lawrence
Parry, Robert


Darling, Alistair
Patchett, Terry


Davies, Ron (Caerphilly)
Pike, Peter L.


Davis, Terry (B'ham Hodge H'l)
Powell, Ray (Ogmore)


Dewar, Donald
Primarolo, Dawn


Dixon, Don
Quin, Ms Joyce


Dunnachie, Jimmy
Ruddock, Joan


Evans, John (St Helens N)
Salmond, Alex


Faulds, Andrew
Skinner, Dennis


Fearn, Ronald
Smith, Andrew (Oxford E)


Fisher, Mark
Smith, C. (Isl'ton &amp; F'bury)


Flynn, Paul
Smith, Rt Hon J. (Monk'ds E)


Foster, Derek
Soley, Clive


Fraser, John
Spearing, Nigel


Galbraith, Sam
Taylor, Matthew (Truro)


Golding, Mrs Llin
Turner, Dennis


Graham, Thomas
Wallace, James


Griffiths, Nigel (Edinburgh S)
Wareing, Robert N.


Griffiths, Win (Bridgend)
Wigley, Dafydd


Haynes, Frank
Williams, Alan W. (Carm'then)


Hogg, N. (C'nauld &amp; Kilsyth)
Wise, Mrs Audrey


Home Robertson, John



Howarth, George (Knowsley N)
Tellers for the Ayes:


Hughes, John (Coventry NE)
Mr. Andrew Welsh and


Hughes, Sean (Knowsley S)
Mr. Richard Livsey.


Ingram, Adam





NOES


Adley, Robert
Bennett, Nicholas (Pembroke)


Aitken, Jonathan
Bevan, David Gilroy


Alison, Rt Hon Michael
Biffen, Rt Hon John


Allason, Rupert
Blackburn, Dr John G.


Amess, David
Blaker, Rt Hon Sir Peter


Amos, Alan
Bonsor, Sir Nicholas


Arbuthnot, James
Boscawen, Hon Robert


Arnold, Tom (Hazel Grove)
Boswell, Tim


Atkinson, David
Bowden, A (Brighton K'pto'n)


Baker, Rt Hon K. (Mole Valley)
Bowis, John


Baker, Nicholas (Dorset N)
Brandon-Bravo, Martin


Baldry, Tony
Brazier, Julian


Batiste, Spencer
Bright, Graham


Beaumont-Dark, Anthony
Brittan, Rt Hon Leon


Bellingham, Henry
Brooke, Rt Hon Peter


Bendall, Vivian
Brown, Michael (Brigg &amp; Cl't's)





Browne, John (Winchester)
Jones, Robert B (Herts W)


Buchanan-Smith, Rt Hon Alick
Jopling, Rt Hon Michael


Burt, Alistair
Kellett-Bowman, Dame Elaine


Butcher, John
Key, Robert


Butler, Chris
King, Roger (B'ham N'thfield)


Butterfill, John
Kirkhope, Timothy


Carlisle, John, (Luton N)
Knapman, Roger


Carlisle, Kenneth (Lincoln)
Knight, Greg (Derby North)


Carrington, Matthew
Knight, Dame Jill (Edgbaston)


Carttiss, Michael
Knowles, Michael


Chapman, Sydney
Knox, David


Chope, Christopher
Lamont, Rt Hon Norman


Clark, Dr Michael (Rochford)
Lang, Ian


Clarke, Rt Hon K. (Rushcliffe)
Latham, Michael


Conway, Derek
Lawrence, Ivan


Coombs, Anthony (Wyre F'rest)
Lennox-Boyd, Hon Mark


Coombs, Simon (Swindon)
Lester, Jim (Broxtowe)


Couchman, James
Lilley, Peter


Cran, James
Lloyd, Sir Ian (Havant)


Currie, Mrs Edwina
Lloyd, Peter (Fareham)


Davies, Q. (Stamf'd &amp; Spald'g)
Lord, Michael


Davis, David (Boothferry)
Lyell, Sir Nicholas


Day, Stephen
Macfarlane, Sir Neil


Devlin, Tim
Maclean, David


Douglas-Hamilton, Lord James
McLoughlin, Patrick


Dover, Den
McNair-Wilson, M. (Newbury)


Dunn, Bob
Major, Rt Hon John


Durant, Tony
Malins, Humfrey


Fallon, Michael
Mans, Keith


Favell, Tony
Marland, Paul


Fenner, Dame Peggy
Marshall, Michael (Arundel)


Field, Barry (Isle of Wight)
Martin, David (Portsmouth S)


Forman, Nigel
Maude, Hon Francis


Forsyth, Michael (Stirling)
Mawhinney, Dr Brian


Forth, Eric
Maxwell-Hyslop, Robin


Fox, Sir Marcus
Mayhew, Rt Hon Sir Patrick


Franks, Cecil
Mellor, David


Freeman, Roger
Miller, Hal


French, Douglas
Mills, Iain


Gardiner, George
Mitchell, Andrew (Gedling)


Garel-Jones, Tristan
Mitchell, David (Hants NW)


Gill, Christopher
Montgomery, Sir Fergus


Goodhart, Sir Philip
Morrison, Hon Sir Charles


Goodlad, Alastair
Moss, Malcolm


Goodson-Wickes, Dr Charles
Moynihan, Hon Colin


Gow, Ian
Nelson, Anthony


Gower, Sir Raymond
Neubert, Michael


Grant, Sir Anthony (CambsSW)
Nicholls, Patrick


Gregory, Conal
Nicholson, David (Taunton)


Griffiths, Sir Eldon (Bury St E)
Nicholson, Emma (Devon West)


Griffiths, Peter (Portsmouth N)
Onslow, Rt Hon Cranley


Ground, Patrick
Oppenheim, Phillip


Gummer, Rt Hon John Selwyn
Page, Richard


Hamilton, Hon Archie (Epsom)
Paice, James


Hampson, Dr Keith
Patnick, Irvine


Hannam, John
Patten, John (Oxford W)


Hargreaves, A. (B'ham H'll Gr')
Pattie, Rt Hon Sir Geoffrey


Hargreaves, Ken (Hyndburn)
Porter, Barry (Wirral S)


Harris, David
Porter, David (Waveney)


Hawkins, Christopher
Portillo, Michael


Hayes, Jerry
Price, Sir David


Hayhoe, Rt Hon Sir Barney
Rattan, Keith


Hayward, Robert
Redwood, John


Heseltine, Rt Hon Michael
Rhodes James, Robert


Hill, James
Ridley, Rt Hon Nicholas


Hind, Kenneth
Roberts, Wyn (Conwy)


Holt, Richard
Rowe, Andrew


Howard, Michael
Ryder, Richard


Howarth, G. (Cannock &amp; B'wd)
Sainsbury, Hon Tim


Howell, Rt Hon David (G'dford)
Sayeed, Jonathan


Hughes, Robert G. (Harrow W)
Shaw, David (Dover)


Hunt, David (Wirral W)
Shaw, Sir Michael (Scarb')


Hunter, Andrew
Shelton, William (Streatham)


Irvine, Michael
Shepherd, Colin (Hereford)


Jack, Michael
Shepherd, Richard (Aldridge)


Jackson, Robert
Shersby, Michael


Janman, Tim
Smith, Sir Dudley (Warwick)


Jessel, Toby
Smith, Tim (Beaconsfield)


Johnson Smith, Sir Geoffrey
Spicer, Sir Jim (Dorset W)


Jones, Gwilym (Cardiff N)
Squire, Robin






Stanbrook, Ivor
Thurnham, Peter


Stern, Michael
Twinn, Dr Ian


Stewart, Allan (Eastwood)
Waddington, Rt Hon David


Stewart, Andy (Sherwood)
Walker, Bill (T'side North)


Taylor. Ian (Esher)
Waller, Gary


Thorne, Neil
Ward, John





Widdecombe, Ann
Tellers for the Noes:


Yeo, Tim
Mr. David Lightbown and



Mr. Stephen Dorrell.

Question accordingly negatived.

Motion made, and Question proposed, That the clause stand part of the Bill.—[Mr. Brooke.]

Mr. Gerald Howarth: This clause chips away at the tax relief which has been available to home owners for a great many years. I welcome the Government's sensible refusal to index the £30,000 maximum for mortgage tax relief. It may have been right to encourage home ownership by fiscal incentive, but there is a case for allowing that distortion to fade away through inflation, which is what is happening.
I should be happy if the incentive were transferred to encourage movement from public to private sector provision for other things, particularly health. Tax relief for the medical insurance premiums of the over-60s would be one way of encouraging further growth in private sector health provision.
It is right to retain tax relief for existing borrowings for home improvement loans. The Committee will welcome that. To have done otherwise would have disrupted the finances of many households that had planned their affairs on the basis that they would get that tax relief. It seems that an existing borrower will lose relief if he repays his loan and refinances it with a new loan from a different lender. In effect, he will be locked into his existing lender. If that lender charges a relatively high rate of interest, the borrower will not be able to shop around the market for a cheaper rate because it is unlikely that the difference in rate will compensate him for the loss of that tax relief. The lender will have his borrower over a barrel.
The problem affects anyone with a mortgage, any part of which was to finance improvements. There are many such mortgages. It is encouraging that the mortgage market has become more competitive in recent years, and it would be a great pity if that competition were stifled by tax problems arising out of this clause. I understand that some mortgage lenders are getting as much as a third of their new business through transfers of existing loans from other lenders. Might it not be more equitable if tax relief could be continued when a borrower refinanced his mortgage with a new lender without losing tax relief?
11 pm
There is also doubt about what happens if a lender wants to sell mortgages to another financial institution. This is an increasingly likely possibility as there are signs of a more active secondary market in mortgages developing here along lines similar to those in the United States. Again, it would be pity if this development were strangled at birth. I should like my right hon. Friend the Paymaster General to reassure the Committee that the borrower will not lose tax relief simply because his lender has sold on the mortgage to another party.
There are also two practical difficulties that I draw to the attention of my right hon. Friend. The first is where a mortgage was taken out some time ago, partly to buy a house and partly to improve it, and has since been partly repaid. How will the Inland Revenue decide what proportion of the remaining loan qualifies for tax relief if the loan is then sold or refinanced?
The second problem, which is rather more important, concerns the first-time buyer of modest means who will buy a property that needs, in the words of the estate agent, "some modification". In other words, it needs a lot of improvement. This means that young couples in particular can buy a first house without having to put down too much capital, and by a process of do-it-yourself can, over months or years, but at their own pace, improve the property and, all the way along the line, borrow money on

the mortgage so that the improvements will qualify for tax relief. I know that many people do this, and I did it myself, and I know that hon. Members on both sides of the Committee will have experience of this situation.
Outside the south-east of England—for example, in my constituency—one can buy a property for £15,000, which is not possible in this part of the country. The capital cost of that acquisition would qualify for relief, but under the clause any improvement done by the young couple who had bought such a house over the next year or two would not qualify for relief, and they would lose that advantage. All sorts of schemes may be dreamt up to do something about this problem, but the chief beneficiaries will be the estate agents—some may say, "again".
I hope that my right hon. Friend will consider the practical difficulties that arise out of this clause, and that he will be able to give me the reassurances that I seek.

Mr. Chris Smith: I hope, as a result of the remarks that the hon. Member for Cannock and Burntwood (Mr. Howarth) has made, that he will be joining us in the Lobby to vote against clause 42. We have a number of basic objections to clause 42. First, it will deter the improvement of the nation's housing stock. Secondly, it will harm the construction industry. Thirdly, it will harm a substantial number of bona fide home owners.
The National Home Improvement Council, in its comments on the measure, has pointed out that this comes on the heels of a number of other Government measures that deter home improvement. It pointed out that the 15 per cent. VAT that is now added to all home improvement works, including repair and maintenance, but does not apply to new build work, is a deterrent to improvement. It also pointed out that the abolition of insulation grants, except for those receiving social security assistance, deters home improvement, as will the abolition of income tax relief on interest on home improvement loans. It went on:
These measures taken together are hard to reconcile with the Government's stated intention of revitalising the older housing stock.
That puts it in a nutshell. The Government cannot on the one hand claim to be seeking to improve our older housing stock, and on the other hand seek to remove tax relief which is one of the mechanisms for bringing about that improvement.
Why are the Government bringing in this measure? Perhaps the answer lies in the Chancellor's Budget speech. When talking specifically about home improvement loans, he said:
This may be partly due to the substantial scope for abuse, as loans ostensibly taken out for home improvements are used for other purposes, a matter which was the subject of a recent report from the Public Accounts Committee."—[Official Report, 15 March 1988; Vol. 129, c. 1009.]
As far as I can tell from reading carefully what the Chancellor said in his Budget speech, and what has been said by Ministers subsequently, that seems to form the entire burden of their argument for removing tax relief from home improvement loans.
Let us consider the question of abuse, which does occur to some extent, and how best to tackle it. First, abuse can be much better controlled than it is at the moment by greater monitoring and checking that work has been carried out for the loan that has been received and which is the subject of relief. Indeed, that was the burden of the two amendments that I and my hon. Friends tabled, and that, in the interest of getting on to the wider clause stand


part debate, I did not move. Surely it should stand as an automatic principle that if there is abuse, the entire relief should not be removed altogether from those who abuse and those who do not abuse. Instead, there should be more careful control of the use to which the loan is put. The Government should have taken that route. Sadly, they did not do so.
Secondly, as far as anyone can tell, abuse is at a relatively low level. Some three years ago, by means of a parliamentary question, I asked Government Ministers what was their assessment of the amount of abuse of tax-relieved home loans. At that time they could not provide an estimate. Now, suddenly, when we come to consider this measure, we get an estimate. The Inland Revenue's best estimate is that the level of abuse on home improvement loans for tax relief is around 20 per cent., of the loans that are taken out. Effectively, the Government, in seeking to tackle 20 per cent. are harming the other 80 per cent.
The Building Societies Association put it extremely well in the briefing document that it prepared in connection with our debate. It is worth quoting because it is apposite to what we are discussing and to the issue of abuse which was raised earlier by the hon. Member for Bournemouth, West (Mr. Butterfill) and which seems to be at the heart of what the Government are seeking to do. The Building Societies Association says:
It seems unfortunate that the government is using abuse as a reason for denying something which was previously considered perfectly acceptable, and, also, that it has not allowed the measures which it had taken to deal with abuse to be seen to be working. It is rather like suggesting that because there is abuse of unemployment benefit, that unemployment benefit itself should be abolished, whereas in this particular area the government does prosecute.
I do not want to give ideas to the Government or some of their supporters, but even this Government can surely see that, even if there is abuse, it should not be tackled by removing the relief altogether.
Some of the items that count as being eligible for home improvement loans are regarded by the Government as luxuries or unworthy items. The item that is always quoted is double glazing. The Government always ignore the fact that double glazing can have beneficial energy conservation effects. It is sometimes needed in inner city constituencies—I speak with some feeling as I represent one of them—to make life tolerable for people by cutting down the level of noise. Far from being a luxury, double glazing may be a necessity.

Mr. Butterfill: If double glazing is necessary because of the amount of aircraft or traffic noise, it can be made available through public funding, but if it is considered to he necessary for insulation purposes it would be very much better to spend the money on insulating the cavity walls or on providing additional loft insulation.

Mr. Smith: The hon. Gentleman is partly right, but he is not right about the availability of public funding. I should like the residents of Canonbury road in my constituency, who include the Economic Secretary to the Treasury, to be able to secure public funds with which to double glaze their windows to keep out the traffic noise, but that is an impossibility. The hon. Gentleman ignores the fact that the Government could have said that they would draw up a check-list of items, some of which are

acceptable while others are not, and that home loans would or would not qualify for tax relief by reference to the check list.
The Government's arguments about abuse and about the "luxury" nature of some of the improvements have no validity because easily administered and valid mechanisms are available to deal with both of those points. Sadly, the Government have chosen to include clause 42 in the Bill. Its effect will be detrimental in a number of ways. It will be detrimental especially to those who purchase homes that are in a substantial state of disrepair. That happens in many parts of the country, and especially to people who are on relatively low incomes, for whom that may be the only way to achieve home ownership status to which they aspire.
Why do the Government not accept the Building Societies Association's proposal, that if improvement work is carried out within 12 months of the purchase of the property it ought to qualify? The Government could easily accept such an amendment to assist the problem of those purchasing homes in a state of disrepair.
The Government ignore the fact that over 1 million dwellings in this country are unfit for habitation. Almost all of them are in the private sector and many are owned by elderly people who, without financial assistance, cannot afford to renovate them or carry out the necessary improvements to enable the homes to be brought up to the appropriate standard. The Government should have taken account of that and of the impact of the measure upon the condition of those properties.
11.15 pm
The Government have not taken account of the problem of replacement or consolidation loans which are often taken out in a bona fide manner by owner-occupiers wishing to consolidate a number of different mortgages on the same property or to transfer their mortgage from one lending agency to another. Again, the Building Societies Association has proposed sensible measures to deal with that problem. I look forward to hearing from the Paymaster General that the Government are listening to those suggestions.
The Government have also done nothing to deal with the anomaly that will develop because the loan on an original purchase will qualify for mortgage tax relief, while the improvement work carried out subsequently will not qualify for tax relief, yet, upon a subsequent sale, the entire value of the improved property will qualify for full mortgage tax relief. Is it fair that the original purchaser should qualify for less mortgage tax relief than the subsequent purchaser? That anomaly will develop as a result of the Government's proposals and, so far as we can see, the Government are doing nothing to deal with that.
Finally, the Government ignore the fact that their proposal will encourage people to take out much larger mortgages than they need to fund a subsequent improvement that they fear may be needed to bring the property up to an appropriate standard.
The Government have ignored all those points in bringing forward this proposal. We must ask them to think again about the clause. It will harm home owners, will be to the detriment of the condition of our nation's housing stock and will play havoc with, and create anomalies in, the home loans market. I sincerely hope that the


Government will go back to the drawing board, think again and, when they see abuse, will not take a sledgehammer to smash many good features.

Mr. Butterfill: I must declare two interests in respect of this clause because, whichever way the vote goes this evening, I may stand to gain from it. First, I am a director of two construction companies with an interest in the removal of the clause from the Bill. Secondly, I am a senior partner in a firm of chartered surveyors which is also involved in estate agency. As many people may be forced to move because they will not be allowed to extend their homes, my agency may well benefit from the clause.
We must address that dichotomy. I would be the first to agree that there have been many abuses of home improvement loans. There is no doubt that loans have been used to buy motor cars, holidays in Marbella and for other purposes for which they were not intended. However, it is possible to deal with those abuses in ways other than by abolishing the system of home improvement loans.

Mr. Bob Cryer: In view of his declaration, would the hon. Gentleman like to comment on the view of Sir Jeffery Sterling about the striking seamen at P and O and moonlighting?

Mr. Butterfill: I do not think that that intervention is worthy of a reply. I shall return to the subject under debate. We are seriously debating whether there should be a system of home improvement loans and what justification there is for them.
In regard to rural properties, for example, it would not be possible in green belt areas to have permission granted for new properties, but it is desirable that existing properties should be improved and, in some cases, extended. In rundown inner-city areas, too, it is desirable to be able to improve the housing stock and to encourage owners to make improvements. For that reason, I hope that it will be possible to retain some relief for those people who wish to improve their properties.
I have received many representations on this matter from the chartered accountants in Scotland and in England, the Building Societies Association and many others. We know that the National Home Improvement Council is anxious that relief should be retained. The essence of the problem is, therefore, how to deal with the abuses and to tighten the criteria under which home improvement grants might be available.
There are some so-called improvements which are not strictly necessary. They could reasonably be excluded. There are others, however, that are entirely desirable and should be permitted. The chartered accountants in Scotland have suggested that there should be a system of inspection by surveyors and that certificates should be issued. Again, I declare an interest as a surveyor, but that proposal seems eminently sensible, especially if the prospective borrower is required to pay the costs that the Government might incur in making inspections and issuing certificates. If the borrower is to receive a benefit in the form of tax relief, he should pay the cost to the public of certifying that relief should be available. As such a scheme could be made available, I ask my right hon. Friend to think again about this matter.

Mr. Win Griffiths: We have here a most insidious and damaging clause which will have serious repercussions on the state of property, especially in Wales and other parts of the country where the industrial revolution had its first roots.
Wales has more housing stock which was built between 1870 and 1914 than any other part of the United Kingdom. Only this week, Arolwyg Cyflwr Tai Cymru—the Welsh house condition survey for 1986—was published. Although it shows a slight improvement in the condition of the Welsh housing stock, it reveals that there are still 72,000 houses which it considers unfit. Of those, 40,000 lack basic amenities of some sort, ranging from no inside toilet or bathroom to no hot water or kitchen sink. Some 55,000 terrace houses in Wales need repairs costing more than £3,000. That applies to 23,800 semi-detached houses and 29,300 detached houses. Fortunately, it applies to only 3,700 flats. There is a need to invest more money in improving the housing stock of Wales.

Mr. Wigley: As part of my own constituency—the Dwyfor area—is cited as the worst district included in that survey, will the hon. Gentleman confirm that the worst districts are also those which have the longest waiting lists for grants, stretching back before 1984? People there cannot rely only on grants to improve the condition of their properties. They must look to capital from other directions to do that, which is why these provisions are so important.

Mr. Griffiths: I confirm what the hon. Member for Caernarfon (Mr. Wigley) says and would add that it is a problem not just in the areas of worst deprivation but right across Wales. Last year, my own district of Ogwr, for example, granted about 800 home improvement grants. The council considers that almost all of the applicants obtained a top-up loan in addition to the grant in the form of an extension to their mortgages, so that the work could be carried our properly. Because home improvement grants are now usually a maximum of 50 per cent. it is necessary for people to obtain an additional loan—yet clause 42 would end tax relief for people obtaining such loans.
The properties concerned are usually of fairly low value and are subject to mortgages nowhere near the £30,000 limit on which tax relief can be enjoyed. They are the property of people who would be worthy of, and could justify receiving, the relief that will now be ended. In the south-east of England, where property prices are much higher, there is no problem about an individual using up the whole of the tax relief to which he is eligible.

Mr. Morgan: Perhaps my hon. Friend and I can educate Conservative Members in respect of the value of typical properties in the valleys or in a south Wales city. There, an unimproved house would be worth perhaps £11,000 or £12,000,and might achieve a value of £20,000 to £23,000 once it had been improved. Even after improvement, those properties would still not utilise the full tax relief that properties in the south of England automatically enjoy.

Mr. Griffiths: Rather than dispense with the scheme altogether, the Government ought to consider clearly defined categories of eligibility. I refer, for example, to those people who have obtained home improvement grants and those people employing energy-saving


measures. I refer also to disabled people, who were the subject of the amendment so unfortunately defeated earlier this evening. There are also properties which have been declared unfit for human habitation but which, according to a local authority inspector, could be made habitable if work was done on them. The Government would do well to reconsider this clause and ways of operating it more effectively.

Mr. Darling: This is a surprising proposal from the Government, as two Conservative Members have demonstrated. We must consider it in the light of other proposals within the Finance (No. 2) Bill. Home improvement is of crucial importance, especially in inner-city areas—one of which I represent. Central Edinburgh generally is not rundown, but had it not been for people improving their own houses, many of those properties would not be left standing today.
Instead of widespread demolition and the building of tower blocks. Edinburgh has been successful in maintaining both the new and the old town. Because most of the property takes the form of tenements, it is expensive to improve and maintain. Improvement to property is surely something that we should encourage, especially as there is usually a high demand for houses of this sort.
In my view, home improvement grants are the main vehicle that we should consider as a means of improving property. They target help in a way that mortgage tax relief cannot possibly do, because many people who live in houses that need improvement do not pay income tax, for various reasons. But, because of cutbacks, there has been restraint. In my constituency, 6,500 people are waiting for home improvement grants. If the Government are to withdraw the concession, perhaps they will consider directing some of the £200 million that will be saved towards the home improvement grants that have been so badly cut back, and constantly interrupted because of shifts in Government policy. If the home improvement grants system worked properly, I might not object so strongly to the proposal, although I recognise that there will always he room for objection.
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The Government have said that the reason for the withdrawal is that, on their calculation, there has been widespread abuse. That is very odd. The Government can put a figure on the abuse and yet, it seems, cannot do anything about it. As has been said earlier, it is quite easy to check whether a home improvement has been carried out, either by seeking invoices or by sending someone round to see what work has been done. I should have thought that even the most elementary training would equip a representative of the Inland Revenue to go and see whether an extension had been built, or double glazing had been put in.
It is important to realise that if an improvement grant cannot be obtained, financing the work oneself and obtaining tax relief can be the only way of carrying out improvements. As long as we live in a country which contains many houses below the tolerable standard, and property that will constantly need improvement and maintenance, it seems premature to withdraw this tax concession. The Government are very keen on stamping out DHSS abuse. If they were serious about the problem

of abuse, it would be easy to institute a proper system of inspection. I should be interested to hear what the Paymaster General has to say about that.
I said at the start that the proposal must be viewed in the context of the Budget as a whole. It is important to bear in mind that yesterday, when we discussed the business expansion scheme, we nodded through a proposal that would enable Rachman-like landlords to thrive. In the same Bill, we find that ordinary decent people are to be denied the means of improving their homes.

Mr. Butterfill: Can we make it clear that Rachman was in the business of evicting tenants, whereas the BES is intended to put tenants into new accommodation? There is no question of "Rachman-like landlords". I wish that Opposition Members could get that into their heads. [Interruption.]

[MR. HAROLD WALKER in the Chair]

Mr. Darling: It is not for me—thankfully—to maintain order in the Committee, Mr. Walker.
We are not discussing the business expansion scheme. I was making the point that we are all concerned to ensure that there are not concessions for one category of people and none for others. The BES is financing an aspect of housing that I consider thoroughly unwanted and disreputable; at the same time, it is removing a concession from ordinary decent people.
Following what has been said by the hon. Member for Bournemouth, West (Mr. Butterfill) and his hon. Friend the Member for Cannock and Burntwood (Mr. Howarth), I hope to see the odd Conservative rebel. Many people will be very upset to discover that they will receive no tax relief on home improvements. They will feel let down, and will not understand why tax breaks should be given to some while help is to be denied to others who wish to do up their houses. The Government should think again.

Mr. Tim Devlin: I was not minded to intervene when I first came into the Chamber but, having listened to my hon. Friends and Opposition Members, I just want to say one or two words to explain why I will be supporting the Government in the Lobby.
I came to the House to help simplify the system of taxation and lower the burden of taxation on our people In the Budget we are cutting the basic rate of taxation from 27p to 25p and we have made a clear commitment that it will be dropped in the future to 20p in the pound. In addition, we have made the move to abolish top rates of tax and have one sole top rate of tax at 40p in the pound. In addition, we have also raised the main tax allowances by twice—

The Chairman of Ways and Means: Order. I must remind the hon. Gentleman that the Committee has debated those matters and I hope that he will now address himself to clause 42.

Mr. Devlin: This is pertinent to clause 42 because it explains the whole rationale. If we are simplifying the taxation system and cutting the rates of tax as part of our strategy, it is wholly in order for us to look at ways in which we can get rid of tax breaks. If there is a lower burden of taxation on the individual, there is no need for taxation breaks. The point I was going to make—

Mr. Chris Smith: Will the hon. Gentleman give way?

Mr. Devlin: I did not intervene in the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith). I will be brief, so if points are to be made—

Mr. Smith: rose—

Mr. Devlin: I am not minded to allow the hon. Gentleman to intervene.

Mr. Smith: rose—

Mr. Devlin: Very well, I will allow the hon. Gentleman to intervene.

Mr. Smith: I am grateful to the hon. Gentleman for finally giving way. He is articulating an interesting and, in some respects, praiseworthy doctrine, which is that one should remove as many anomalies and reliefs from the tax system as possible. Would he extend that argument to mortgage tax relief as a whole, which has been stoutly defended by his Prime Minister—

The Chairman: Order. If the hon. Member for Stockton, South (Mr. Devlin) were to respond to that invitation, I would rule him out of order. I hope that we can now return to the subject of home improvement loans.

Mr. Devlin: My sole point in making this short speech is to show that breaks such as tax relief for home improvements are blunted the more the rate of taxation goes down. Since it is our stated intention to lower the burden of taxation on the individual, there is absolutely no need for breaks such as home improvement loans to continue. That is our strategy. It is perfectly clear and I agree with it wholeheartedly.
The question of luxury spending has been raised. I can think back to what has happened in my constituency over the past few years. When the A66 and the A19 were constructed, all those—

The Chairman: Order. The hon. Gentleman is inviting the Committee to widen the debate way beyond the scope of clause 42. There is nothing in that clause about the A19 or any other road. I hope that we can return to home improvement loans.

Mr. Devlin: There is inherent in clause 42 the question of double glazing. The point has been raised that many people—for example, those who live in Canonbury road—should have tax relief for double glazing. Those who lived near the A66 and A19 when the roads were built were offered funding by the Government to put in double glazing. Outside of such circumstances, there is no need for the Government to provide tax relief as well.
I see no reason why we should give tax relief on home improvement loans which are often used for the purchase of motor cars, for people to go on holidays, or for home improvements in the nature of swimming pools.

Mr. Campbell-Savours: I shall intervene only briefly, as I have already spoken in the debate.
As we all know, citizens are responsible for paying tax equally, wherever they are in the United Kingdom, and they are equally treated within the law, wherever they live in this country. What worries me is that the Government are drawing a distinction between the treatment of a person in the south of England, who invariably has a mortgage in excess of £30,000—perhaps £50,000—and a

person in the north of England, or in other parts of the kingdom, who might have a property worth substantially less, and a much lower mortgage.
For example, a fireman in Surrey may have a mortgage facility of £30,000, whereas a fireman in Workington may live in a house that is worth £25,000 but have a mortgage facility of only £20,000. I submit that a fireman in Workington, having paid exactly the same taxes as a fireman in London, is equally entitled to the tax concession available in these circumstances. He should not be singled out for special treatment and be told that, although he pays the same taxes, he is not entitled to the same tax concessions. Almost uniquely in that respect, the provision in the Bill is totally mistaken.
When the Treasury drew up its recommendations for this year's Budget, it might well have forgotten to consider the divisive nature of the recommendation. In parts of the United Kingdom outside the south, especially in the north of England, Wales and Scotland where property is cheaper, it is certainly in a far worse condition, particularly in the inner cities. We are locking people into property in parts of the country where values are lower and conditions are worse by insisting on a provision that prevents them from taking out an additional mortgage that has tax relief. I hope that the Minister will take that point carefully on board.
We are told in the notes on clauses that clause 42(1) provides that loans made after 6 April 1988 for home improvements will no longer qualify. However, this exclusion does not operate where the loan is for the erection of a new building which is not part of an existing residence on land which, immediately before the development, had no building upon it.
I can foresee circumstances—perhaps this is my devious mind working—where a person who wishes to build an extension can employ a builder to put up a building within, say, 6 or 9 in of the existing building, for which he would get tax relief and be within the law. After the friendly builder says, "Look, guy, you'd better get the man down from the bank to clear it so you get your relief," after the man from the bank has disappeared back to the bank, or whatever is the monitoring authority for all this nonsense, the builder will then say, "Right guy, I'll put the bricks up now and fill the cavities at each end." In effect, the extension will become part of the house. That is the way in which people will get round the provision.

Mr. Butterfill: Would the hon. Gentleman agree, being equally devious, that it might be possible for builders to devise bed-and-breakfast schemes for home owners, whereby they would buy the property and improve it, and then immediately, even within the same contract, sell it back improved, with the benefit of the whole loan qualifying for relief?

Mr. Campbell-Savours: I am glad that the hon. Gentleman intervened. He seemed to suggest that my proposition might well apply and that there would be such abuses. He drew attention to a further form of abuse, about which I do not know but which appears to be complicated in so far as there is a legal requirement. That approach may be adopted.
I have put two points to the Paymaster General. Can the right hon. Gentleman assure the Commitee that there will not be a subsidy for a construction 6 to 9 in. away from an existing building? What amendment will be made


to this provision to ensure that that does not happen? I ask also for equal treatment within the law for people who pay taxes.

Mr. Kirkwood: The hon. Member for Workington (Mr. Campbell-Savours) raised the serious point of the regional discrepancies that this measure will introduce. The problem will worsen as time goes on. I do not think that the Treasury has given any thought to this aspect. If it has, I should like to hear a substantive defence to the point which the hon. Gentleman made so eloquently. This matter applies not just to the north of England but to rural areas.
The hon. Member for Islington, South and Finsbury (Mr. Smith) said that this proposal would do nothing to improve housing stock. People in England and Wales have the benefit of a statutory and regular house conditions survey, but we do not have that luxury north of the border because the Government refuse to pay for it. No one knows to what extent the housing stock in Scotland needs to be repaired, but I am certain that this measure in clause 42 will make the position substantially worse.
In constituencies such as mine, one of the most successful acts of the Conservative Government in 1983 was to give substantial improvement grants. They were extremely successful, especially in rural areas and in the private sector. The grants made a substantial difference to derelict farm cottages. The points which have been made about Wales also apply to my part of the world, where improvement grants are not sufficient to effect refurbishment of these properties and where more money is required to top up the grants. Clause 42 will bring that system to an end.
I return to the point made by the hon. Member for Cannock and Burntwood (Mr. Howarth). I am worried when young, first-time buyers purchase property for £15,000 and seek to improve it with an improvement grant of £15,000. The Government have not properly considered that matter, and I look forward to hearing the Paymaster General's comments.
We all have an interest in trying to eliminate abuses. I do not think that anyone is in favour of the stories about these grants which the popular press has been carrying in the past couple of years. The remedy, which the hon. Member for Islington, South and Finsbury has suggested, is to check abuses directly at source without abandoning the whole system.
The real abuse is the fact that the Government did not take the opportunity in the Budget to restrict mortgage tax relief to the standard rate of tax. The Government reduced the top tax rates but, if they wanted to save money and to end abuses, they would have restricted mortgage tax relief instead of making this ludicrous proposal.

Mr. Morgan: What happens if the effects of clause 42 and the business expansion scheme provisions for assistance in rented housing are combined? A young couple looking in an inner-city or coal mining area at an 1870 to 1914 property with a dodgy roof will compete against a BES-funded property consortium which, more than likely, can get tax relief at the top rate. How will that produce a simplified tax system, as the hon. Member for Stockton, South (Mr. Devlin) wants? How will it produce a level playing field for a young couple wanting to buy a

house and a tax-subsidised business consortium that will obviously be able to outbid that young couple? That is the question to which we want an answer.

Dr. Marek: Not a week ago I had a letter from the Corlan Housing Association—a letter that some of my hon. Friends may also have received—saying that I will be aware of Corlan's role in providing sheltered housing for elderly people in Wales and that it has extended its services to include two "staying put" projects. The letter goes on:
Some of the projects' clients are eligible for a repairs or improvement grant but the majority live outside the housing priority areas and would have to wait some years. Many large repairs, therefore, are wholly privately financed by the owner-occupier taking out a maturity loan from a building society or bank. The loan is then paid back on an interest-only basis until the house is sold or, the borrower dies, when the capital amount is recovered.
The association also says:
we feel that the new regulations regarding tax-relief on home improvements are bound to have a negative effect on the success of these projects by deterring both potential clients from taking up loans and lending institutions from offering them readily.
This is a housing association, not a private Rachmanite organisation of any kind. We shall be seeing such organisations, of course, once the business expansion scheme gets off the ground. [Interruption.] It is no use hon. Gentlemen saying "Jesus". They do not need to invoke the deity in this argument. It is quite wrong to do so.

Mr. Butterfill: Silly—not Jesus.

Dr. Marek: It is certainly not silly. Hon. Gentlemen will see the results and the truth that we have spoken in the years to come.
These "staying put" projects have been supported by the Welsh Office, yet now there is a danger that they will not go ahead. The letter goes on:
We would, therefore, suggest that exemption for those over retirement age should be actively pursued as a matter of urgency.
I think that there is a very good argument for the Government to take this clause away and say that they will think about it. We have heard the hon. Member for Bournemouth, West (Mr. Butterfill) arguing along these lines, albeit in a different way, and we have heard a very cogent argument from the hon. Member for Cannock and Burntwood (Mr. Howarth) also for the abandonment of this clause. Therefore, I hope that the Minister will consider this very carefully.
There are ways of getting round this problem. For example, one could have better compliance procedures. It is very clear that in many cases bank managers simply do not ask whether the loans have gone towards home improvements or been used for a second holiday somewhere in Spain or Italy. Alternatively, the Government could define more narrowly those improvements that would qualify for loans. There is no doubt that it could be done if the Government had the will.
Some hon. Members—in particular, the hon. Member for Stockton, South (Mr. Devlin)—actually said that some people want double glazing because they want double glazing. Why does the Conservative party think that double glazing is necessary only for someone who is near a main road or if there is a lot of aircraft noise? The point is that our housing stock is not very good compared with many European countries. There is something good about


having double-glazed housing. If somebody wants double glazing he ought to be able to have it and he ought to be encouraged by the Government to have it.

Mr. Devlin: I agree with the hon. Gentleman. We have put more money in the pockets of ordinary people with which to buy double glazing if they wish.

Dr. Marek: With respect, that is a facile argument. The average man in Britain has not had a lot of money put into his pocket. If the hon. Gentleman had been here throughout the debate he would have realised that it is the super rich who have a lot of money in their pockets. The average person does not have much money—certainly not enough to install double glazing in his or her house.
First-time buyers of dilapidated houses deserve a loan on which they can obtain relief in order to get on the first rung of the house-buying ladder. I always thought that that was what the Conservative party was about, but clearly I am wrong.

Mr. Brooke: In the interests of abbreviating this debate—this is the first occasion on which I have intervened—it may help the Committee if I make a brief general remark.
The removal of relief for interest paid on home improvement loans is part of the Government's general programme of reducing tax rates and removing tax reliefs which are complicated, uneven in their availability and expensive in terms of revenue or administrative costs. In future, mortgage interest relief will be concentrated on its primary aim, which is to help people buy their own homes.
I recognise that improvements which genuinely make more accommodation available for home ownership might merit some assistance but only a very small part of home improvement relief is devoted to such purposes. It is in any event only available to a borrower who has not used all his relief on house purchase. It is not true, as some of the more sensational stories have suggested, that the relief is widely used to subsidise the construction of swimming pools and tennis courts.

Mr. Campbell-Savours: The right hon. Gentleman is not living in the real world.

Mr. Brooke: I went out of my way to say that those suggestions were not true.
But the fact is that about seven out of eight of these loans are used for installations such as double glazing and central heating. I do not deny the merit of home owners improving their houses and adding to their value in this way, but I see no reason why the tax system should subsidise this particular form of consumer credit.
My hon. Friend the Member for Cannock and Burntwood (Mr. Howarth) and the hon. Member for Islington, South and Finsbury (Mr. Smith) addressed the Committee on observations made by the Building Societies Association. The Building Societies Association pressed for protection when a loan is replaced outside the borrower's control—for example, in the two circumstances of local authorities or commercial lenders closing their whole mortgage book. We think that very few will be affected: remaining local authority mortgage lending is small and much of that is almost certainly for purchase rather than improvement. Although the Building Societies Association is apparently unaware of this, we understand

that the one commercial institution to which it refers has already disposed of its mortgage business, and not to a building society.
Other cases might arise, but it would be open to the lender to make special arrangements for any protected loans by, for example, simply letting them run to maturity. No doubt the BSA is correct in saying that the main motivation for replacing a loan would be to obtain a lower interest rate, but it does not follow that there would be less tax relief overall. The tax relief might well increase if the replacement loan carried extended terms or was on an endowment rather than a repayment basis. In the case of excessive interest rates of over 20 per cent. charged by some lenders, replacement current mortgage interest rates of around 10 per cent., even without tax relief, would be advantageous.
It is true that problems will arise when loans are replaced and have to be split into qualifying and non-qualifying parts. That is not a new problem. The abolition of improvement loan relief simply extends an existing problem. Increased competition in recent years has meant that lenders, including building societies, have been making loans for many purposes.
The main thrust of the considerable advertising of replacement loans is the consolidation of various loans into a replacement with a lower average interest rate. When that occurs it is relatively easy to isolate the purchase element being replaced. It would be much more difficult to establish to what extent the balance represented an improvement as opposed to, say, a car purchase element. There will be a strong incentive for borrowers to certify that the replaced loans were entirely for purchase or improvement.
As the legislation stands, and once we have disposed of the loans straddling 6 April, no loan will qualify for relief unless it is for purchase. This enables us to simplify the application forms and concentrate compliance checking on purchase loans. If, however, protection is extended to replacement loans, it means that loans made for improvements will qualify for relief if they replace pre-6 April loans. This will add to the compliance checking burden and policing will be difficult.
12 midnight
I agree that there is some merit in extending relief to replacement loans where the borrower has no control over the replacement. However, it would be difficult to confine legislation to this very small class. Extending protection to all replacement loans will give scope for avoidance, add to the administrative burden, and prolong the preferential tax treatment for existing compared with new borrowers.

Mr. Gerald Howarth: Will my right hon. Friend address himself to the point that the secondary mortgage market is growing? He has referred to one organisation which is engaged in the market. According to the BSA bulletin of July last year, there are no fewer than five organisations, all backed by major city institutions, engaged in the market. I am not sure that they represent a small number of people. Certainly the potential is there for a large number of people to be involved.

Mr. Brooke: I am grateful to my hon. Friend for his further intervention.
The argument advanced by the building societies is that the abolition of relief for improvement loans is particularly harsh on poorer people purchasing rundown properties.


They suggest that relief should be allowed when loans are applied to repairs or improvements undertaken within 12 months of purchase. But this proposal amounts to a continuation of the present system with a 12-month time limit. Relief would continue provided the work was carried out within one year of purchase. This point was made by the hon. Member for Islington, South and Finsbury.
The same distribution of improvement work, with a heavy concentration on items such as double glazing, would probably prevail. If, however, an attempt were made to restrict relief to deserving improvements to dilapidated houses, considerable compliance and policing problems would arise. There would be a large grey area in determining a deserving improvement and the time limit would create a further inequity. Why should the person who can raise finance within a year of purchase get relief when a perhaps poorer person, who has to wait longer, is denied? Derelict housing is in any event often restored by a builder or developer who sells the improved property. The new owner can then obtain relief on a purchase loan.
In the case of council house purchases under the right-to-buy scheme substantial discounts of up to 60 per cent. are available. The 12-month period allowed for the occupation of a newly purchased property simply permits the purchaser to obtain mortgage interest relief if his move is, for example, delayed because of difficulty in selling his existing house. Therefore, it is not relevant as a precedent for a 12-month limit on improvement relief.

Mr. Battle: The view which the Minister has just expressed runs counter to the view of the National Home Improvement Council. I recall that on 17 March, a few days after the Budget, that council was addressed at a luncheon by the Minister for Housing and Planning. He was pressed on the matter and was asked to take back to the Treasury the view of the council that the proposals would not improve the housing stock. Certainly I was under the impression, as many people there were, that the Minister for Housing and Planning would have discussions with the Treasury on the matter. Can the Minister tell the Committee the outcome of the discussions between the Treasury and the Department of the Environment?

Mr. Brooke: I share with the Committee the point that it is not common custom to reveal conversations that may be going on within the Government. I am grateful to the hon. Gentleman for giving me the opportunity to say that.
On secondary effects, first, it is suggested that tighter compliance checking of improvement loans has reduced VAT evasion—although no evidence is produced. Even if true, it is a strange argument to propose that income tax relief should be given so as to increase VAT compliance.
Secondly, it is claimed that improvement loan relief has not been abolished, but merely deferred, because a buyer of an improved house will qualify for relief on a purchase loan. But abolition ensures that the same improvement does not qualify for relief twice. Before abolition, the improver obtained relief for the improvement loan and then sold the improved property. The purchaser then obtained relief on a purchase loan covering the improved property. In future, relief will arise only on the purchase transaction. By denying relief to the improver there will be a genuine reduction in the cost of mortgage interest relief.
Thirdly, it is suggested that people will borrow more initially on purchase if they know that they cannot get the

relief later in improvement loans. We doubt that. Most people will in any case borrow as much as they can afford from the beginning, at least up to the ceiling on tax relief.
The hon. Member for Edinburgh, Central (Mr. Darling) raised matters concerning abuse. The Inland Revenue has concentrated compliance checking on the higher risk, higher value loans, and has been making detailed investigations into a random sample of such cases. We estimate that about 1·5 million new home improvement loans are currently being taken out each year. To require and check the evidence that improvement work has been carried out in every case, as various hon. Members have suggested, would be a formidable administrative task. There is, too, the practical problem that most improvement loans are of necessity taken out before the work is carried out. Interest becomes payable immediately and tax relief is often allowed at source through the MIRAS system. If relief were not allowed until the work had been carried out, and the evidence supplied and checked, it would then have to be allowed retrospectively by the tax offices, which would add a further administrative cost and mean a bureaucratic paper chase.

Mr. Darling: Is the right hon. Gentleman saying that there have been significant cases of abuse? If so, what has been done about them? Or is he saying that he thinks there might be a problem, so the whole thing must go? Will he not hammer anyone else merely because of the odd case of abuse that there may be?

Mr. Brooke: The hon. Member for Islington, South and Finsbury acknowledged that abuse was running at 20 per cent. by the Inland Revenue account, which he described as a relatively low level. He did not quote the amount of money involved, which is £100 million. If our positions were reversed, I do not believe that Opposition spokesmen would seek to cover up an abuse of £100 million. The order of magnitude of the problem emerged after the Public Accounts Committee report.

Mr. Butterfill: To the extent that there might be abuse, would my right hon. Friend comment on the suggestion made by the Institute of Chartered Accountants of Scotland that independent checking could be done at the expense of the borrower? Would it not be possible retrospectively to disallow relief and to include a penalty if abuse were discovered?

Mr. Brooke: I am grateful to my hon. Friend.
I shall conclude the discussion about abuse. The hon. Member for Workington (Mr. Campbell-Savours) raised a point about the tax system applying throughout the United Kingdom. If I may give him an observation from a southern constituency, a borrower who is forced to pay £30,000 in a high-cost area in the south-east of England for purchasing purposes is then denied any opportunity of mortgage interest relief for an improvement loan under the existing system.
The hon. Member for Workington went on to ask me a question about an empty plot. Only a completely empty plot, plus a new building, qualifies. So a separate second building, such as the hon. Gentleman envisaged, would not qualify. I can recall Customs and Excise taking a similar interest, for policing purposes, in such cases, in the context of VAT.

Mr. Campbell-Savours: The right hon. Gentleman has not answered the first proposition that I put to him, and that many in the north of England will want him to answer. We pay the same taxes in the north as people do in the south. Why should we not have an equal right to the full £30,000 facility? As, due to the arrangement of property prices in the United Kingdom, people in the south are more inclined to take up their tax allowance in full, why can we not have an equal advantage?

Mr. Brooke: The hon. Gentleman answered that question himself, when he stated that the tax system applies throughout the United Kingdom. There is a particular level of relief and that applies everywhere.
The hon. Member for Wrexham (Dr. Marek) spoke about "care and repair" mortgages. These are usually for small amounts and to poorer people, for houses probably worth no more than £15,000. The National Federation of Housing Associations does not specify an income limit for qualification. It rightly explains that there are more attractive schemes for richer people with more valuable properties. However, these mortgages would rapidly gain wider appeal if they qualified for tax relief. Operating an income limit would be administratively difficult, as income is usually not known until after the end of the year, whereas interest relief under MIRAS is given by deduction at source at the time of payment. At present mortgage interest rates, the tax relief on a £2,000 mortgage is worth about £50 a year, or £1 a week. Without underestimating the value to a poor person, that seems a peculiarly cumbersome way to provide such a small improvement subsidy. A more sensible approach, involving the better targeting of improvement grants to those most in need, is outlined in the consultation paper "Home Improvement Policy" published by the Department of the Environment on 5 November last year.

Dr. Marek: Surely the targeting is already there, because wealthy people would not live in small houses costing £15,000.

Mr. Brooke: The hon. Gentleman knows that if a similar abuse were found under other circumstances he would be the first to point it out.
As to abuse, the steps taken last year to tighten compliance checking will continue for the substantial number of improvement loans taken out before April, for which relief is continuing. For the future, it will be concentrated on its primary aim of helping people to buy their own homes. The removal of this relief, which, to a large extent, simply subsidises consumer credit, is in line with our general policy of reducing tax rates, broadening the tax base, and simplifying the tax system, and I ask my hon. Friends to support the clause.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 153, Noes 65.

Division No. 296][12.12 am


AYES


Alison, Rt Hon Michael
Benyon, W.


Allason, Rupert
Bevan, David Gilroy


Amess, David
Biffen, Rt Hon John


Amos, Alan
Blaker, Rt Hon Sir Peter


Arbuthnot, James
Boscawen, Hon Robert


Arnold, Tom (Hazel Grove)
Boswell, Tim


Atkinson, David
Bowden, A (Brighton K'pto'n)


Baker, Rt Hon K. (Mole Valley)
Bowis, John


Baldry, Tony
Brandon-Bravo, Martin


Bennett, Nicholas (Pembroke)
Brazier, Julian





Bright, Graham
Kirkhope, Timothy


Brittan, Rt Hon Leon
Knapman, Roger


Brooke, Rt Hon Peter
Knight, Greg (Derby North)


Burt, Alistair
Knowles, Michael


Butcher, John
Knox, David


Butler, Chris
Lamont, Rt Hon Norman


Butterfill, John
Lang, Ian


Carlisle, John, (Luton N)
Latham, Michael


Carrington, Matthew
Lawrence, Ivan


Carttiss, Michael
Lennox-Boyd, Hon Mark


Chapman, Sydney
Lester, Jim (Broxtowe)


Chope, Christopher
Lilley, Peter


Clark, Dr Michael (Rochford)
Lloyd, Peter (Fareham)


Clarke, Rt Hon K. (Rushcliffe)
Lord, Michael


Conway, Derek
Lyell, Sir Nicholas


Coombs, Anthony (Wyre F'rest)
Macfarlane, Sir Neil


Coombs, Simon (Swindon)
Maclean, David


Couchman, James
McLoughlin, Patrick


Cran, James
Major, Rt Hon John


Currie, Mrs Edwina
Malins, Humfrey


Davies, Q. (Stamf'd &amp; Spald'g)
Mans, Keith


Davis, David (Boothferry)
Martin, David (Portsmouth S)


Day, Stephen
Maude, Hon Francis


Devlin, Tim
Maxwell-Hyslop, Robin


Dorrell, Stephen
Miller, Hal


Dover, Den
Mills, Iain


Dunn, Bob
Mitchell, David (Hants NW)


Fallon, Michael
Montgomery, Sir Fergus


Favell, Tony
Morrison, Hon Sir Charles


Fenner, Dame Peggy
Moss, Malcolm


Field, Barry (Isle of Wight)
Moynihan, Hon Colin


Forman, Nigel
Neubert, Michael


Forsyth, Michael (Stirling)
Nicholls, Patrick


Forth, Eric
Nicholson, David (Taunton)


Freeman, Roger
Nicholson, Emma (Devon West)


French, Douglas
Oppenheim, Phillip


Garel-Jones, Tristan
Page, Richard


Gill, Christopher
Paice, James


Goodhart, Sir Philip
Patnick, Irvine


Goodson-Wickes, Dr Charles
Patten, John (Oxford W)


Gow, Ian
Porter, David (Waveney)


Gregory, Conal
Raffan, Keith


Griffiths, Peter (Portsmouth N)
Redwood, John


Ground, Patrick
Rhodes James, Robert


Gummer, Rt Hon John Selwyn
Ridley, Rt Hon Nicholas


Hamilton, Hon Archie (Epsom)
Roberts, Wyn (Conwy)


Hannam, John
Ryder, Richard


Hargreaves, A. (B'ham H'll Gr')
Sainsbury, Hon Tim


Hargreaves, Ken (Hyndburn)
Sayeed, Jonathan


Harris, David
Shaw, David (Dover)


Hawkins, Christopher
Shaw, Sir Michael (Scarb')


Hayes, Jerry
Shepherd, Colin (Hereford)


Hayward, Robert
Shepherd, Richard (Aldridge)


Heseltine, Rt Hon Michael
Smith, Sir Dudley (Warwick)


Hind, Kenneth
Smith, Tim (Beaconsfield)


Howarth, G. (Cannock &amp; B'wd)
Spicer, Sir Jim (Dorset W)


Hughes, Robert G. (Harrow W)
Squire, Robin


Hunt, David (Wirral W)
Stern, Michael


Hunter, Andrew
Taylor, Ian (Esher)


Irvine, Michael
Thorne, Neil


Jack, Michael
Thurnham, Peter


Janman, Tim
Twinn, Dr Ian


Jessel, Toby
Waddington, Rt Hon David


Jones, Gwilym (Cardiff N)
Widdecombe, Ann


Jones, Robert B (Herts W)



Jopling, Rt Hon Michael
Tellers for the Ayes:


Kellett-Bowman, Dame Elaine
Mr. Tony Durant and


Key, Robert
Mr. David Lightbown.


King, Roger (B'ham N'thfield)





NOES


Abbott, Ms Diane
Buckley, George J.


Ashdown, Paddy
Campbell, Menzies (Fife NE)


Barnes, Harry (Derbyshire NE)
Campbell-Savours, D. N.


Battle, John
Carlile, Alex (Mont'g)


Beith, A. J.
Cryer, Bob


Bradley, Keith
Cunliffe, Lawrence


Brown, Gordon (D'mline E)
Darling, Alistair


Brown, Nicholas (Newcastle E)
Davies, Ron (Caerphilly)


Bruce, Malcolm (Gordon)
Davis, Terry (B'ham Hodge H'l)






Dewar, Donald
Michael, Alun


Dixon, Don
Mitchell, Austin (G't Grimsby)


Evans, John (St Helens N)
Morgan, Rhodri


Foster, Derek
Nellist, Dave


Fraser, John
Parry, Robert


Galbraith, Sam
Pike, Peter L.


Griffiths, Nigel (Edinburgh S)
Prescott, John


Griffiths, Win (Bridgend)
Quin, Ms Joyce


Home Robertson, John
Salmond, Alex


Howarth, George (Knowsley N)
Skinner, Dennis


Hughes, Sean (Knowsley S)
Smith, Andrew (Oxford E)


Ingram, Adam
Smith, C. (Isl'ton &amp; F'bury)


Jones, Ieuan (Ynys Môn)
Smith, Rt Hon J. (Monk'ds E)


Kirkwood, Archy
Soley, Clive


Lewis, Terry
Taylor, Matthew (Truro)


Livsey, Richard
Turner, Dennis


Lloyd, Tony (Stretford)
Wallace, James


McAvoy, Thomas
Wareing, Robert N.


McFall, John
Welsh, Andrew (Angus E)


McKay, Allen (Barnsley West)
Wigley, Dafydd


McLeish, Henry
Wise, Mrs Audrey


Mahon, Mrs Alice



Marek, Dr John
Tellers for the Noes:


Marshall, Jim (Leicester S)
Mr. Frank Haynes and


Maxton, John
Mrs. Llin Golding.


Meale, Alan

Question accordingly agreed to.

Clause ordered to stand part of the Bill.

Bill ( Clauses 22, 23, 26 to 28, 31, 42, 49, 91, 98, 127 and 128 and schedule 7) reported, without amendment; to lie upon the Table.

Misleading Advertisements (Control)

The Parliamentary Under-Secretary of State for Industry and Consumer Affairs (Mr. John Butcher): I beg to move,
That the draft Control of Misleading Advertisements Regulations 1988, which were laid before this House on 23rd March, be approved.
If approved, the proposed regulations would implement the Council directive 84/450/EEC, relating to the approximation of the laws, regulations and administrative provisions of the member states concerning misleading advertising.
The directive has its origins in the preliminary programme for consumer protection adopted by the Council of Ministers in 1975. Technically, it is a harmonisation directive. In proposing it to the Council, the Commission argued that the differences between member states' laws on misleading advertising impede the free flow of goods by restricting international advertising campaigns and making it difficult to adopt a uniform marketing strategy.
The first draft of the directive required member states to enable complainants to approach a court to have a misleading advertisement prohibited. On the recommendation of the European Parliament, that was amended so that the appropriate powers and duties could be conferred on either the court or an administrative authority.
Against that background. the previous Government set up a working party, the Burgh committee, comprising the principal interests involved, to consider how the self-regulatory system of advertising control, administered by the Advertising Standards Authority, should be reinforced by legislation. The incoming Government in 1979 felt that the working party should first consider whether reinforcement of the self-regulatory system was necessary. Although we felt that the system generally worked well, the working party suggested that the Director General of Fair Trading could usefully be given a power to apply to the High Court for an injunction in those cases where the self-regulatory system had failed to prevent the publication of a misleading advertisement.
Subsequent negotiations on the directive enabled the United Kingdom to achieve two very important changes which allow us to implement it along the lines of the working party's recommendation. First, if a member state chooses to provide for complainants to have access to an administrative authority, that authority may be empowered either to decide on complaints itself, or to apply to the court for an order prohibiting a misleading advertisement. Secondly, the directive now enables us to give administrative authorities powers to require complainants to have prior recourse to other established means of dealing with complaints, including self-regulatory systems.
In the most general terms, the directive requires member states to ensure that they have adequate and effective means for the control of misleading advertising, to protect consumers, other businesses and the general public. In particular, those means of control must include measures for the legal prohibition of misleading advertisements.
The directive defines both "advertising" and "misleading advertising" very widely and that is reflected in the definitions in regulation 2 of the draft regulations. The draft regulations do not, incidentally, reproduce article 3 of the directive which sets out an illustrative list of examples of information that should be taken into account in determining whether advertising is misleading. In our view, the list is unnecessary. We consider that it does not add anything and, in practice, may even serve to narrow the interpretation of misleading advertising in the United Kingdom to a degree not intended by the directive. The definition of "advertisement" would extend to oral representations and leaflets, but an advertisement would be misleading only if, by its deceptive nature, it was likely to affect consumer behaviour or to injure a competitor of the advertiser. To be misleading, an advertisement would not need to have actually affected any consumer or competitor. It would be enough that the advertisement was likely to have such an effect.
Member states are required by the directive to provide arrangements enabling any person or organisation regarded under national law as having a legitimate interest in prohibiting misleading advertising to initiate legal proceedings against such advertising or to bring it before an administrative authority. An administrative authority must be competent either to decide on complaints or to initiate appropriate legal proceedings. The Government propose to entrust this competence to three named administrative authorities.
The principal authority would be the Director General of Fair Trading. Regulation 4(1) would put him under a duty to consider complaints, and regulation 5(1) would empower him, if he thought it appropriate, to apply to the High Court or, in Scotland, the Court of Session for an injunction or an interdict.
The duty to consider complaints would be subject to two qualifications. The director would not be required to consider a complaint if he considered it frivolous or vexatious. More importantly, he would be able to require complainants to satisfy him that they had exhausted the established means of dealing with complaints. In effect, this would be a discretion to refer complainants to other bodies. The main bodies would be the Advertising Standards Authority and the trading standards department of local authorities. He would, however, be able to refer complainants to other bowies as appropriate in relation to particular complaints.
The House will no doubt be familiar with the self-regulatory system of advertising control which is administered by the Advertising Standards Authority. The Government believe that self-regulation has, by and large, served the public well and have no wish to diminish its importance—hence the proposed power of the director to require prior recourse to established means. Regulation 4(4)(b) would require him to have regard to the desirability of encouraging the self-regulatory system.
The other principal established means would be the trading standards departments of local authorities. Their activities stem mainly from their enforcement functions under the Trade Descriptions Act 1968 and other consumer protection legislation. Although the legislation

which they enforce provides for criminal penalties for non-compliance, trading standards departments resolve most cases with the advertisers concerned.
I think that it is important that these regulations should not undermine the valuable work done already by trading standards departments. I believe that they, and the ASA, will be able to point to the director's new powers to encourage advertisers to co-operate voluntarily and withdraw or amend any offending advertisement.
I should mention that there are several other bodies operating to control misleading advertisements in particular sectors of the market that the director would no doubt wish to refer complainants to in appropriate cases. They are, for example, the Department of Health and Social Security for pharmaceutical products, the Building Societies Commission for advertising by building societies, and the Bank of England for banking services. The director would have a wide discretion to refer complainants to such bodies as he thought fit.
To enable him to fulfil his functions, regulation 7 would give the director a power to require information to be supplied to him, in particular to ascertain whether factual statements in an advertisement were true. Failure to comply with a notice from the director requesting information could be followed by an order from the court on the application of the director requiring the default to be made good. This power is necessary for those cases where the evidence as to whether an advertisement is misleading is uniquely in the possession of the advertiser. To be able to act swiftly and effectively, in the interests both of consumers and of rival advertisers, the director needs a power to obtain this information.

Mr. John Fraser: Is it intended that the power should be exercised before the director general applies for an injunction or during the injunction proceedings? It would seem sensible to get the information before applying for the injunction.

Mr. Butcher: The agency would normally be the first body that the director general would expect to have an investigation made. If the agency did not feel that it could secure the information it required, under standard practice, it would go via the director to the High Court—if that long-stop power were required—to obtain the information. I hope that that helps the hon. Gentleman. If he will allow me to continue, he may find that there is further clarification later in my speech.
In the case of broadcast advertising, and advertising transmitted by a licensed cable service, the administrative authorities would be the Independent Broadcasting Authority and the Cable Authority, respectively. Both are already empowered to decide on complaints. The IBA may, if it considers an advertisement misleading, refuse to broadcast it, and the Cable Authority may, under section 15(1) of the Cable and Broadcasting Act 1984, issue a cable operator with a direction not to transmit an advertisement. In the event of a cable operator failing to comply with such a direction, the Cable Authority already has the power to apply to the court for an injunction or to revoke the cable operator's licence.
Under the draft regulations, both authorities would be able to consider a factual claim in an advertisement to be inaccurate if the person responsible for the advertisement failed to substantiate the claim when asked to do so by the


authority. The relevant provisions are, in relation to broadcast advertising, draft regulations 8 and 9, and, in relation to cable advertising, draft regulations 10 and 11.
In implementing the directive we propose to allocate responsibilities between administrative authorities primarily on the basis of the medium carrying the advertisement. However, there would be one sectoral division. Investment business advertisements issued by or on behalf of a person authorised under the financial Services Act 1986 or the appointed representative of such a person would be excluded from those regulations. Implementation of the directive in that sector would be achieved by the provisions of that Act, and the administrative authority would be the Secretary of State or any person to whom he has transferred relevant functions under the Act. In practice, that would mean the Securities and Investments Board.
The SIB has issued rules governing the conduct of business by authorised persons, which include prohibitions on those types of advertising practice which the directive seeks to prevent. Some authorised persons will operate under the rules of self-regulating organisations or recognised professional bodies, themselves recognised by the SIB. SROs and RPBs are required to have rules providing investors with protection at least equivalent to that provided by the SIB's own rules. The SIB has power to apply to the court for an injunction restraining an authorised person from a breach of the SIB's rules or, in certain circumstances, those of an SRO or an RPB. Both the SIB and the Secretary of State have power to apply for an injunction restraining an authorised person from a breach of certain provisions of the Act itself, including its provisions as to advertising.
Therefore, regulation 3 would provide for the exclusion of investment advertisements issued by authorised persons and their appointed representatives. However, advertisements issued by persons exempt from the requirement for authorisation under the Financial Services Act would fall within the scope of the draft regulations. Regulation 3 would also exclude listing particulars and associated advertisements. The Government's view is that the directive does not apply in this area, as there is a set of specific directives which regulate these matters.
These regulations, if approved, would be a valuable addition to our already extensive regime of protection against misleading advertisements. Moreover, they would achieve that in a way that created no new criminal offences for traders; did not impose burdens on business; did not undermine the established means; imposed a negligible cost on the public purse; and afforded responsible businesses protection against unscrupulous competitors. In short, this measure is good news for both consumers and business. I commend it to all quarters of the House.

Mr. Austin Mitchell: It is clear from the Minister's somewhat laboured explanation that we are dealing with a ramshackle structure. I am sure he did not wish to be misleading, but he succeeded in being confusing. It is not clear that this measure will operate in the simple and straightforward fashion that we want in controlling misleading advertising.
We welcome anything that will control, check and stop misleading advertising, and it is right that we should do so. We welcome such measures even more when they provide

us with the interesting spectacle of a Minister from the DTI criticising misleading advertising. It is interesting to watch the Minister walking the fine line between his attachment to market forces and the need, forced upon him by Europe, to introduce some form of regulation.
We have two basic points of criticism. The first and most straightforward point is simply that the process of developing the regulations has taken far too long. This is the gestation period not of one elephant, but of a dozen elephants. Moreover, the way in which the regulations have been produced reflects no credit on the EEC. We do not expect otherwise. The EEC is used to producing—and is there to produce—such Euro-farces. But it reflects no credit on the Government either. The Government have dragged themselves slugfooted, clumsily, reluctantly, hesitantly and pedantically to the regulations. I should have added "belatedly" to that list.
At the end of that elephantine gestation period, we are left with a "ridiculus mus"—an allusion for the classically educated hon. Members on the Conservative Benches, who do not play much part in the Conservative party; they, I imagine, are nocturnal advertising men—which has been born deformed and hybrid, rather than high-bred. It is neither self-regulation nor proper, effective regulation. It is an uneasy compromise between the two, which really does not do enough to regulate the deficiencies in the existing system.
The European side of the story is quite straightforward. It is an early venture by the EEC into consumer protection, which is welcome as a departure from its usual role of producer protection—particularly in regard to producers of useful things such as dairy products. Its origins date back to 1975. The directive was first published in 1978, without proper consultation or any recognition of the way in which we do things in this country. Since then, the advertising industry has clearly had a long struggle to draw the teeth of the original proposals of 1975 to 1978.
The Advertising Association says:
A ten-year drafting process is not only wasteful in terms of money and time, but does little to improve attitudes to the Commission held either by industry or by anybody else. Worse, it puts an unacceptable strain on the essential partnership between consumers and industry.
It has not been the most enjoyable experience for the association. But that was only the beginning. After the European side, we hear the British side of this story of blunders.
The directive was finally adopted in a changed form in 1984, and the member states were supposed to comply with it by 1986. In 1988, we are finally making the appropriate provisions. I am not trying to argue that our control of misleading advertising is the best in the world. I would be suspicious of any such claim. Basically, it consists of the Trade Descriptions Act 1968, which makes it an offence to publish false and misleading statements. But even that needs updating to conform with modern conditions.
I understand that the Trade Descriptions Act does not cover property, and therefore does not cover the misleading advertisements put out by estate agents. Some of them are so lyrical and devious that they are worthy of Conservative Central Office. I see that the Estate Agents Act 1979 is brought into the regulations. Are we now to assume that misleading advertising by estate agents—


concerning the major purchase in people's lives—is now effectively controlled in a way that it was not controlled by the Trade Descriptions Act?
That is the first of our frameworks. The second relates to the powers of the IBA and the Cable Authority, which, on the whole, work reasonably well—except, in my view, when it comes to children's advertising, which can be totally misleading. My own kids set up a clamour for a toy which looks so effective, so lifelike, so exciting. When it is obtained, it certainly does not work in the way advertised on television.
Thirdly, there is the self-regulation of the Advertising Standards Authority. On the whole, I support self-regulation, and it works reasonably well. However, it is not perfect. It is important for us to keep up the pressure on the self-regulators because it can be a cosy conspiracy of industry managing itself. We should keep up the pressure to improve self-regulation, tighten the discipline and make it more effective. That is a power that we should exercise. It is right to be suspicious of self-regulation.
Self-regulation as it exists does not have effective teeth. There are areas that leave a lot to be desired, such as small advertisements, quack medicine advertisements, even loan advertisements. The Minister mentioned the financial services legislation. That covers investment advertising, but does it also cover the sort of loan advertising we see, particularly in the Sunday newspapers, where people are invited to pay less by paying more or to reduce their burdens to one monthly cheque, often at an exhorbitant rate of interest? That legislation certainly applies to investment advertising, but does it apply to loan advertising and will it be covered by the regulations?
A further point of clarification about the Advertising Standards Authority is that it needs some sort of statutory back-up. It needs some sort of machinery—perhaps a reserve power—to strengthen it. Our view is not invalidated by the fact that the European Commission agrres with it. Bad authorities do not necessarily make bad arguments. The Commission wanted a statutory reserve power. The interesting spectacle of the past four years has been to see the Government wriggling to fulfil their obligations to the Committion without upsetting their advertising friends and disturbing too much their own penchant for self-regulation, which extends everywhere except putting the burglars in charge of crime prevention.
We have had the spectacle of the Government wriggling in that fashion for a long time. Indeed, it began in 1980 when the Department of Trade and Industry working party recommended new powers for the Director General of Fair Trading as a back-up to the Advertising Standards Authority.
In 1984 the Government slugfootedly proposed that they should have power to seek court orders prohibiting the publication of misleading advertisements. In 1985 we had a consultative paper which made that proposal and which also said that there should be no direct access to the courts for individuals or organisations. It said that everything had to be channelled through the Director General of Fair Trading. The Government's arguments in that consultative paper are a criticism of the delays and inadequacies of the courts of law in this country.
In 1986, which was getting near the deadline appointed by the Commission, we finally had draft regulations. They

reduced even more the powers given to the Office of Fair Trading by requiring that office to pay due regard to the desirability of encouraging voluntary control. Effectively, what was being said was, "Here is a power; do not use it."
That was followed by the next draft regulations in February 1987. The deadline had passed and Britain was behind. That draft dropped the proposed powers for the IBA and the Cable Authority to require information from advertisers.
Finally, there was a draft in February 1988. That draft, even at the end of that long, awkward, clumsy and stumbling process, fell foul of the Joint Committee on Statutory Instruments. It was felt that the powers to require information from advertisers might be ultra vires in the sense that they were not required in the initial directive. The Committee went on to note that the regulations omit the provisions of article 3 of the directive, specifying matters relevant for determining whether advertising is misleading.
The Government did not want those requirements in their regulations. I can see why, given the nature of much of the Government's advertising. The directive proposes that an advertisement is misleading if it deceives in any way, including its presentation. That suggests that a lot of Government advertising, such as the advertising in Scotland on the poll tax, which my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) has, would fall foul of it. It would be very difficult to justify it in terms of that rubric. At the end of the process, we end up with the regulations that we are debating tonight. It is a sad saga.

Mr. Bob Cryer: Does my hon. Friend not think it curious that, although the Joint Committee on Statutory Instruments published its comments in its 21st report, which was available at the end of March, the Minister did not reply to the vires point, the fact that the regulations cover only part of the directive, and also that the statutory instrument refers to implementing the whole directive? That is another example of misleading. The omission of advertising from the Minister's speech is curious. He made no reply to the Committee's recommendations.

Mr. Mitchell: I agree absolutely. The Joint Committee has thrown the Minister an embarrassing hot potato. He did not know what to do with the report. The Government thought they would allow time to lapse and forget about it, so that they could gloss over it. The Joint Committee was right to make those points, and the Minister was wrong not to take them up in his speech. He will still have to deal with them when he replies to the debate.
That is the end of a process during which, the Advertising Association tells us, it has done all the work, rather than the Department of Trade and Industry, and has made the running throughout the past decade. The association says:
The Advertising Association spearheaded an industry working party which was in close liaison with the Department of Trade and Industry at every stage of the directive's development. This working party included representatives of the advertisers, the advertising agencies, the television companies, the ASA, the IBA, the Cable Authority, the CBI' and every vested interest under the sun.
This is a Government of vested interests. We represent the consumer in this matter. The DTI has given full and


free rein to every vested interest under the sun. That is why it has all taken so long. We are now at the end of a long and painful process.
The Government are one of the major vested interests in this whole process. It is difficult for the Government to regulate misleading advertising properly and effectively when they do so much misleading advertising. The television campaign on "Job Start" has become a shabby way of shaking people off the unemployment register and is advertised as a dynamic new beginning.
The misleading advertising on the poll tax in Scotland falls foul of the rubric. Misleading advertising from the Department of Trade and Industry tells us about the enterprise initiativ—"Take it"—as if the Department was doing more for industry, when it is doing less than any of its European competitors and less than industry needs. It is handing over its work to consultancies with the aid of a gigantic consultancy "slush fund" that is being promoted by the DTI's own misleading advertising.
It is clear that the Government do not want the machinery to have effective teeth, because those teeth will probably end up in the backside of Lord Young of Graffham-Saatchi-Thompson as the most misleading advertiser in this country. We want a Government of advertisers for advertisers by advertisers who do not want effective regulation.
The Opposition will not oppose the regulations, but we certainly will not rejoice at an achievement that is inadequate and has taken so long and been so clumsy. It has taken eight years for us and 13 years for the European side. We will not indulge in any hymn of praise; we shall just have a quiet laugh. It will provide the Minister with a good plt for his next rock opera—one that he can advertise, even under the terms of these regulations, as combining the charm of the right hon. Member for Chingford (Mr. Tebbit), the compassion of the right hon. Member for Finchley (Mrs. Thatcher) and the lewd bawdiness of the right hon. Member for Suffolk, Coastal (Mr. Gummer), and get away with it.

Mr. Bob Cryer: I must point out, yet again, that the Minister did not make any reference to the 21st report of the Joint Committee on Statutory Instruments. I should have thought that, in a debate on the Floor of the House, the Joint Committee's efforts deserved some sort of reply other than the memorandums from the Department of Trade and Industry which are printed in the report.
On regulation 7, the Committee said that the power to require any person to furnish to the Director General of Fair Trading such information as may be specified or described was not contained in the EEC directive. There was no specific provision for that power, so we asked the Department of Trade and Industry for a memorandum. The Department said that, in effect, although there was no direct provision, it was necessary to have the power to implement the directive. Since the Department thought that that was a reasonable point of view, it decided to use those powers.
That is not the basis of legislation. If the Department happens to think when looking at subordinate legislation that the powers should exist, but they do not exist in

primary legislation, it is not incumbent upon that Department to assume that those powers exist and put them forward. On page 3 of our report, we said:
In the Committee's view, these arguments, however cogent they may be on the question of the expediency of including Regulation 7, do not answer the question whether in the circumstances there is power under s.2 of the 1972 Act to do so"—
that is, the European Communities Act 1972. The Department does not have power to provide regulation 7 of the statutory instrument; therefore, we reported on the ground that there was a doubt about the vires.
As my hon. Friend the Member for Great Grimsby (Mr. Mitchell) pointed out, the regulations omit article 3 of the directive, which sets out a definition of "misleading" and includes a number of illustrations of what "misleading" might constitute. That practice is precedented in other primary legislation. The explanatory note to the regulations suggests that they depend on the implementation of the whole directive. The explanatory note says:
These Regulations implement Council Directive No. 84/450/EEC…relating to misleading advertising.
The explanatory note should have said that the regulations implemented parts of that Council directive. That would have been a more honest and accurate account. As the Minister knows full well, these regulations have the full power of law and, in that, there are sanctions to apply the law and the user should have legislation that is as clear and free from ambiguity as possible. An explanatory note that states that the whole of the directive is being implemented is misleading when, on the admission of the Department, certain aspects of the directive are omitted. It does not give much confidence that the terms of the directive will be implemented with enthusiasm by the Minister when his own regulations appear to be misleading at the outset.
I hope that at the conclusion of this short debate the Minister will turn his mind to the conclusion of the Joint Committee, which is not a very powerful body, although it is set up by the House of Commons to weed out the discrepancies and ambiguities in delegated legislation, because delegated legislation has the same force of law as primary legislation. I remind the Minister that the Committee has a majority not of Opposition Members but of Government Members. Yet the Committee has made these points and it seems to me that it is incumbent on the Minister, in accounting for his actions to the House, to give a full explanation of the omissions and deficiencies that have been drawn to his attention in our 21st report.

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Mr. John Fraser: My hon. Friend the Member for Great Grimsby (Mr. Mitchell) welcomed the regulations, although he made it quite clear that if they had been prepared by a Labour Government they would have been more severe and more extensive. For many years hon. Members on both sides of the House have wanted to do something about the statutory back-up to the powers of the Advertising Standards Authority. I was certainly engaged as Minister of State for Consumer Protection up to 1979 in trying to introduce something along the lines of the regulations which are before us tonight.
The paradox is that, if we had wanted to legislate and there had not been the European directive, it would not have been possible to have something before us tonight in the form of regulations which could be concluded in an


hour and a half. We would have needed primary legislation, which would have had a Second Reading and no doubt occupied at least half a day in the House and several days in Committee. I am not saying that that is necessarily a good way of going about these things, and the lesson for future legislation, particularly on consumer protection and matters of regulation, whether involving companies or trading standards, is tht there is a very strong case for stating principles in legislation and giving the House an opportunity with the European Communities Act to pass legislation which is long overdue without having to rely upon the legal basis of a directive from Europe. So I think that in drafting future legislation on consumer matters, advertisement, and so on, that is necessary.
These regulations have been far too long in coming before the House. The last Labour Government negotiated with the advertising business. I found its members extremely professional, very quick and very co-operative, and it would have been possible by 1979, or certainly by 1980, had it not been for delays in Europe, to present something along these lines, given adequate parliamentary time. That is the great advantage of having regulations rather than an Act of Parliament.
It has taken altogether, as the Minister made quite clear, about 13 years from conception to execution to get a statutory back-up to the Advertising Standards Authority. That is far too long and in future we want to see a bit more speed. For instance, there has been on the stocks for a very long time a directive about doorstep sales, which is one of the most blatant forms of consumer abuse. Goods are sold on the doorstep to vulnerable people who do not have the chance of obtaining independent advice. That directive ought to be implemented as rapidly as possible.
Is Lord Young of Graffham to be the first to receive an injunction under the present regulations, because he goes on television, spending the advertising slush fund, telling us that we will have a single integrated market by 1992. Hon. Gentlemen may say that I have gone over the top, but we have had a modest regulation on which there has been almost total agreement between the industry, the Labour, Conservative and Liberal parties and everybody else as far as I know and on which there has been unanimity for 13 years, including the virtual unanimity in Europe, and it has taken 13 years, on a matter which is uncontested an which comes before the House at 10'clock in the morning, to put it into practice. Shall we really have a single integrated European market by 1992 on matters which will be highly controversial? I should have thought that one of the first persons to suffer what I think is called an interdict in Scotland and an injunction in England would be Lord Young of Graffham.
My second question concerns a technical matter. Is it intended that there should be a power to obtain ex parte injunctions under the tax regulations? If the order obtained by the Director General of Fair Trading in the courts is the last resort, and if people are expected to explore other avenues first, I should have thought that the ex parte injunction was inappropriate. I hope that the Minister will say something about that.
Thirdly, I should like the Minister to say whether the regulations broaden the control over misleading information beyond the statutes that give rise to present liability for breach of regulations under the Consumer Credit Act 1974 or obligations under the Trade Descriptions Act 1972. I am thinking, for instance, of the misleading advertising by people such as Allied Carpets, Queensway Discount Warehouses, or MFI before it merged with another firm. There are two institutions in Britain which have continuous sales. One is Her Majesty's Government and the other is the discount warehouse—Allied Carpets, Queensway Discount Warehouses and so on. The prices advertised at such discount stores are those at one of their stores in a remote part of the country, and clearly that is misleading to consumers.
I hope that the Minister will say that there will be discussions with the Director General of Fair Trading and the Advertising Standards Authority to widen the scope of the code of practice because criminal sanctions have proved peculiarly inadequate in such cases of misleading price claims, irrespective of the Consumer Protection Act, and whether those regulations willthen be available to prevent the kind of abuse of consumer information that has been commonplace for far too long among discout warehouses.

Mr. Matthew Taylor: I must make it clear that, committed as we are to the extension of consumer rights, Democrats welcome the regulations and their effect in reining in misleading advertisers. It is a pity that the regulations have been so long in gestation, but they are, nevertheless, a necessary and important addition to the present self-regulatory powers.
No one should doubt the value of the changes to ordinary men and women. The regulations introduce a legal backdrop that begins to give some teeth to the current system where that is necessary, in particular, where quick action is needed.
Nevertheless, there remain several outstanding concerns, some of which have been aired tonight and more of which should be aired. The first is that protection is needed not only against advertisements that are misleading—that is the limit of the regulations-but, for example, against the 12 per cent. of cases referred to the ASA in 1986 which concerned adverts thought to be distasteful, indecent or in some other way offensive. Of those, more than one in three alleged that adverts were distasteful because of their depiction of women.
Indeed, one of my constituents complained to me of the junk posted through her door by a tabloid newspaper advertising and illustrating pornographic videos and magazines—material that went first into the hands of her children. The present advertising code looks at whether a majority would react, or whether a minority finds advertisements grossly offensive, but it can take precious little account of whether material will reach the hands of minors, as in my constituent's case, or of the offensive treatment of women.
If women are viewed primarily as sex objects, there is not a great deal that the ASA can do. We still find near-naked women used to sell car parts, or what have you, in the press. The cinema, I regret to say, goes further. Atmospheric scenes evocative of rape are not uncommon and in too many cases go beyond acceptable limits.
The present self-regulating system seems increasingly unable to address the problem and it is not touched on in the regulations. During the long interval, has the Minister addressed the problem? He should do more than ask advertisers and businesses what they think, because clearly they have a vested interest in anything which may sell their products. Has the Minister considered whether anything can he done to tighten control?
Of still more immediate concern is the overstopping of political boundaries. I do not suppose that the Government have done much about this; if they have, they have no told us about it. There is a thin line between politics and public information, as the Goernment themselves pointed out when they banned local authorities from engaging in campaigns. Hon. Members have already referred to some of the campaigns which the Government ae involved in.
Public information on AIDS or the single European market which is to come into effect in 1992 may b one thing, but what of more controversial advertising on the poll tax or changes in benefits? What about the way in which the problems are glossed over and only the positive side is presented in an attempt to promote policies which are politically controversial and which are not of general public interest?
We are told that the IBA has refused departmental advertising on a number of occasions. Will the regulations apply to the Government's own advertisements? Have they considered the effect that the regulations will have? They will have to be careful when they put the regulations into practice. It is reported that the will spend £1 million on the English and Welsh poll tax campaign. We have already heard about the Scottish campaign. When they go ahead with the English and Welsh campaign I would not be surprised if they were the first victims of their own regulations. They may be had up for misleading the public about the campaign being part of the Government information service when it is blatant party political propaganda, paid for this time not by local authorities through the rates but by central Government out of the public's income tax contributions.
At the end of the day it is not Government, advertisers or big businesses which have the greatest interst in the proposals. It is the ordinary man or woman who interferes in no one else's life but is prey to small-time sharks who are interested only in making a fast buck at someone else's expense. Mail order advertising is one area of which I hope the Minister will take particular account.
Another that has hit some of my constituents are advertisements offering so-called work at home. There are several types but the most common advertisement demands a fee or a deposit for an instruction pack on how to start earning. Large earnings are promised with little effort or skill required. But the pack brings no more than a number of display cards and suggested advertisements to he used at the consumer's expense to recruit—yes—more home workers. In other words, the scheme recruits ever more agents to recruit ever more agents, with no real product at the end. The purchaser of the pack has to choose between losing his money—the sums involved mean a lot to the individuals who put money into these schemes—or trying to rip off someone else to recoup what he has already lost.
I took up a case with the Minister. My constituent from Mount Hawke had fallen prey to just such an unscrupulous scheme. The Minister's response was

interesting. He offered little consolation. The Department was aware of such rip-offs and he quoted the ASA code. Indeed, he mentioned that tonight's new regulations might control such conmen; he hoped so anyway. But he did not seem certain. He concluded:
It remains to be seen whether 'money making' schemes like this will be brought under control.
Without effective control, the Minister was only able to suggest that my constituent write to the advertiser to say
he considers that he was misld by their literature and demanding a refund of his money.
It is not very realistic if, in spite of the regulations and the ASA's code, all a person such as my constituent can do is write to the shark in question at a PO box number through which he will not be traceable. In this case, the shark did not even seem to have a box number; he had an address which turned out to be one, but it did not look like one.
So we must hope that the regulations will be effective. More effective protection for the ordinary men a nd women who suffer from such advertisements is needed. But the fear remains that the regulations will not work. The Minister expressed it in the letter to which I have referred. If the regulations do not work, I and my hon. Friends will return to the House to seek greater protection for consumers—the ordinary men and women who are always the losers.

Mr. John Home Robertson: The House should be grateful to the European Commission for taking this initiative, which has led the Government to take this rather timid step towards more effective controls on advertising standards.
The Minister spoke about the powers of the Director General of Fair Trading and our beleaguered local authority trading standards departments. He might also have referred to the most effective agency of all in enforcing standards of advertising—the "That's Life" programme, which seems to be the ultimate deterrent for many charlatan operators. My hon. Friend the Member for Norwood (Mr. Fraser) said that Lord Young of Graffham would be the first person to be hauled before the courts under the new regulations, but I suspect that we can beat him to that in Scotland.
The Secretary of State for Scotland has been inundating the letter boxes of Scotland with junk mail such as that described by the hon. Member for Truro (Mr. Taylor). The utter hypocrisy of Government Departments is a serious problem. They legislate to prevent local authorities from advertising certain aspects of their work, but blatantly spend large sums of public money on advertising the Government's political point of view. There have been recent spectacular examples of that in Scotland with the poll tax, as my hon. Friend the Member for Great Grimsby (Mr. Mitchell) mentioned.
I have a copy of a leaflet. circulated by the Scottish Office last autumn at public expense. It was sent to every household in Scotland, and was misleading in many ways. It was a nice glossy leaflet with pictures of smiling people who will evidently be eager to pay the poll tax in due course. The leaflet was an attempt to sell the poll tax to an uninterested and hostile population in Scotland. It begins:
"What is the Community Charge?
It is a contribution payable by each adult to their local authority".
The word "contribution" implies that there is something voluntary about the poll tax. This is the soft sell approach.


"How will the Community Charge differ from domestic rates?
Domestic rates are paid by householders, less than half the adult population.
That is almost true, but the Government can make that assertion only by assuming that spouses are not part of the household. If we include the spouses of ratepayers, about 80 per cent. of the population of Scotland are ratepayers.
"Will those on low incomes have to pay, such as the unemployed and other benefit recipients?
Yes, but the rebate scheme will take account of their ability to pay.
Those of us who followed the interesting debates initiated by the hon. Member for Hampshire, East (Mr. Mates) on the English poll tax Bill will know that the rebate scheme takes only limited account of the ability to pay. Once again, we have demonstrated that that leaflet, circulated by the Government at public expense, was misleading and deceitful advertising material.
There is lots of stuff about "self-regulation". The Independent Broadcasting Authority and the Advertising Standards Authority apply certain standards to commercial advertising, but what self-regulation is there over misleading and deceitful Government advertising? I hope that the Minister will say something about that.
That is not the end of it. Another booklet has been circulated in Scotland, entitled,
You and the Community Charge—A step by step guide.
Again, that has nice little graphics of smiling people, including, rather significantly, a smiling policeman and a man holding a shovel and also smiling. No doubt he is equally enthusiastic about the prospect of paying the poll tax. Among other things, it poses the question:
Will the Registration Officers be able to go wherever they want to get information for their Registers?
The answer is:
No. The inquiry form will always be the main source of information. The Registration Officers will not be able to approach people's neighbours.
The registration officers and their staff this very week in Scotland, in my constituency and in Strathclyde, are trying to get information from neighbours about who is resident in which household. That is another example of a deceitful assertion, seeking to reassure people in Scotland about the way in which the poll tax will be operated.

Mr. John Maxton: It is even more misleading than that. When I received my form to fill in, it had my name and that of my wife on it. How the inquiry form can be the main source of information to the registration officer when it already has that vital information, I do not understand.

Mr. Home Robertson: My hon. Friend is right. We could have an interesting debate about the poll tax, but I suspect, knowing the stringent standards that you apply to these debates, Mr. Deputy Speaker, that I might run into trouble were I to do so. The point is that this soft sell, coming from the Secretary of State for Scotland, at public expense, is misleading and deceitful advertising.

Mr. Matthew Taylor: I would not want to accuse the Government, wrongly, of deliberately and directly misleading people in a leaflet, but the leaflet says that people cannot be approached for gossip and rumour about their neighbours. We were told in the Committee considering the Bill to introduce the poll tax into England

and Wales that they could. Is there to be a different situation in Scotland—in which case, I am rather concerned for my constituents, and why they are being treated differently—or are the Government completely wrong in that leaflet?

Mr. Home Robertson: The answer is that there is to be equality of misery between the constituent parts of the United Kingdom, except that we are getting it a year earlier than the south.
The substance of the debate concerns advertising standards and the need for adequate protection of citizens, traders and everybody else against deceitful advertising. It comes ill from a Minister in this Government, whose colleagues in another Department are putting about misleading and deceitful advertising material at public expense, to give us such an assurance. I welcome the principle of more effective controls of such advertising, but I want an assurance that Government Departments and Ministers will be subject to the same standards. If such standards are to apply, the Secretary of State for Scotland should be hauled up before the appropriate authority, or court, pretty damn quick, and that would be a useful step in the right direction.

Mr. Michael Jack: I rise to ask my hon. Friend the Minister two questions. Will he clarify how the regulations interrelate with the misleading price indicators code, which he is currently drafting under the terms of the Consumer Protection Act 1987? Will action under the regulations in any way prejudice subsequent action that someone may wish to take on the subject of misleading price indicators under the Consumer Protection Act?

Mr. Butcher: A large number of questions have been raised and in the time available I shall do my best to respond to each of the specific questions that have been put to me.
First, in regard to loan advertisements, consumer credit advertisements are regulated under the Consumer Credit Act and enforced by the trading standards department under the Director General of Fair Trading. Such advertisements may also be controlled under these regulations by the Director General of Fair Trading, or in the case of a television advertisement on independent television by the IBA, or by the Cable Authority in the case of cable advertisements.
The hon. Member for Great Grimsby (Mr. Mitchell) went on to say that we were talking about a ramshackle structure, that it would take too long and that we were tardy in our reaction in comparison with other members of the European Community. My brief answer to that is that an extensive regime is already in place in the United Kingdom and these regulations provide a long-stop, albeit a potentially draconian long-stop. Secondly, it was necessary for us to co-ordinate the implications of the regulations with the financial services legislation, and, thirdly, the United Kingdom has negotiated the system which we wanted to fit in with our regime. I do not think that the hon. Gentleman was entirely correct in his assertion that we are behind the European Community. Several other member states have not yet implemented such measures.
The question was asked why the Government have not provided complainants with direct access to the courts. That would place an excessive burden on the court's resources, and I have every confidence that the Director General of Fair Trading will be able to identify those complaints which require action. I used the expression "long-stop". In most cases, we would expect the director general or an appropriate administrative body to take the bulk of the action required. Only if he is faced with a particularly serious action will the director general need to go to the High Court for an injunction. Of course in a particularly serious situation we are complying with the requirements of the directive.
The hon. Member for Bradford, South (Mr. Cryer) rightly reminded us of the very important role of the Joint Committee. I made reference to that Committee in my opening comments—perhaps at too high a speed. The hon. Gentleman, amongst other things, raised the Committee's doubts about the vires for this power. I do not share those doubts. I consider that it is fundamentally a question of fact rather than law. The director general has considerable experience of the operation of a similar injunctive power under section 35 of the Fair Trading Act 1973, and he has found that the lack of a power to require the production of relevant information about business conduct has significantly restricted his ability to take effective action under that Act. If advertisers are able to frustrate the operation of these regulations, we shall not be meeting the requirements of the directive. Therefore, I consider that the power is quite justified.

Mr.. Austin Mitchell: Why did the Department, after initially proposing that the IBA should have the same power to require evidence from advertisers, withdraw that proposal and not give the IBA such powers?

Mr. Butcher: The IBA has a very clear sanction to stop an advertisement which does not satisfy it. I believe that it has a good track record in exercising its responsibilities in that regard. The regulations deal with the prevention of advertising, if it is felt that it is likely to mislead. Penalties are dealt with in different legislation—for example, in the Trade Descriptions Act 1968. All hon. Members will commend the way in which the Independent Broadcasting Authority has used its preventive powers. I do not believe that it wants them to be enhanced.

Mr. Cryer: The point is not that the powers are not needed to implement the directive but whether the Minister has the power to implement the directive that is provided for by primary legislation. Merely because the director general thinks that the powers might be useful does not give the Minister the right to provide for them in the regulations. That can be done only by means of primary legislation. Is the Minister able to point to any primary legislation that would provide him with that power?

Mr. Butcher: Statutory powers are provided in the Trade Descriptions Act, and they have been used by trading standards officers. The regulations do not challenge those powers. We want to encourage trading standards officers to take advantage of the penalty powers that are provided for in the Act. We also want them to take advantage of the power to stop, investigate and police, and this is provided for in the regulations. I shall examine the

record carefully tomorrow. If what I have said is not clear to the hon. Gentleman, I shall write to him, expanding on the points that he made in his first intervention.
The hon. Member for Norwood (Mr. Fraser) asked about doorstep selling, about the possibility of ex parte injunctions and about continuous sales. The directive on doorstep selling has been implemented. Regulations have been made and they come into force in July. As to the possibility of ex parte injunctions, interim relief is available for urgent cases, as regulation 6(1) makes clear by its reference to an interlocutory injunction. However, it will be the exceptional, not the normal case. As for continuous sales, misleading prices are to be dealt with by regulations that are to be made under part III of the Consumer Protection Act 1987 and by a code of practice that is to be approved under the Act. Misleading advertisement regulations will also be available, if necessary. If there is doubt, changes will be made to the Advertising Standards Authority code. I hope that that explanation helps the hon. Gentleman, but again I shall examine the record arid if there is a point with which I have not dealt I shall write to him.
The hon. Member for Truro (Mr. Taylor) referred to the exploitation of women in advertising and asked why the regulations should not be used to restrain their exploitation. I recognise that some people are offended by the way in which women are represented in some advertising. The agencies that have a regulatory function in relation to matters of general taste apply the standards that they believe to be held by most people. Most advertising conforms to those standards. In any event, the regulations are not an appropriate occasion for addressing such matters, as the directive is confined to misleading advertisements.
The hon. Gentleman also asked whether the regulations deal with the advertising of pornographic material. He may not have mentioned dubious telephone services, but that is also part of the question. The regulations will enable the director general to seek a court injunction against a misleading advertisement, if he considers that it is appropriate to do so. The regulations are not the way in which to deal with the wider subject of other methods of marketing goods and services, to which some people object.

Mr. Austin Mitchell: If I see an advertisement featuring a scantily clad girl, which promises to tell me on the telephone about "My first ride" and I then ring up and hear about pony-trekking on Exmoor for 10 minutes and am dissatisfied with that, do the regulations provide me with a means of redress?

Mr. Butcher: If the lady in question had satisfied the hon. Gentleman's objective arid he really was asking for a heavy-breathing telephone call, that would be covered by the Telecommunications Act 1984. It is an offence to send an obscene message over a telecommunications system, as he will know because he served on the Committee which considered that Bill.
It is not a question of obscenity, so far as the misleading aspect of such a message is concerned, if it is found to be harmless. We must ask whether the advertisement was legal, decent, honest and truthful. I do not wish to pronounce judgment on that, but, as a preliminary stab, I would say that it may not have been truthful, as the hon. Gentleman may have expected a heavy-breathing


conversation and received a much more harmless one. I suspect, therefore, that the advertisement was misleading in that it was not truthful.
I turn now to the question of political advertising. I appreciate that there was a great temptation on the part of Opposition Members to indulge in leg-pulling about my Department's major campaign. I make no apology for that whatsoever. There is a strong reason for marketing the approach to 1992. I wish to quote from the Daily Mirror editorial of 12 March which states:
1992 must not become another 1066.
Yesterday, Mrs. Thatcher and the Trade Secretary, Lord Young, launched a campaign to make all of us, employers and workers alike, aware of what is needed.
We must all support it. It is not a party political matter. Our future rests on its success.
I assume that most Daily Mirror editorials are now cleared with the Leader of the Opposition, so I ask the hon. Member for Great Grimsby to take another look at his comments when he made his accusations of politicisation of some of our advertising. We stated clearly in the White Paper that
One of the aims in developing and publishing the objectives of the DTI was to give greater cohesion to its organisation and policies. The policies which DTI operates and the services which it offers to industry must be limited in number, coherent in approach and tightly defined so that they can be clearly understood and recognised by people in business. They must be well marketed and promoted.
I have heard accusations from some Oppostion Members that many of the Department of Trade and Industry's schemes and methods of assisting business and commerce have not been properly marketed, and that it is difficult for businesses in their constituencies to obtain what is available. We have been advised time and time again to use the most powerful medium, which is

television. We are doing that and our advertisements correspond clearly with that legal, decent, honest and truthful requirement placed upon us by current practices.
The hon. Member for Great Grimsby tempted Conservative Members and indulged in a little leg-pulling about the politicisation of Government advertisements. The Opposition should take another look at some of the advertisements that appeared in the dog days of the Labour Administration in the 1970s. There is a magnificent headline in a national advertisement put out by the then Labour Government in 1975, which says:
We must all co-operate in these difficult times to save our country…Inflation. We can beat it together.
By contrast, the Department of Trade and Industry's advertising campaign says to British industry, "Be a winner". We are saying, "This is how you can win. This is the information that you need, come and get it." What I have here is entirely negative and should be a political advertisement. I shall advise Conservative Central Office to reproduce this advertisement in the press as it stands so that people can be reminded of what it was like back in 1975.
A second advertisement, which I have here, reads:
The Government's Anti-Inflation programme came into full effect on August 1st. This is what it will mean to you.
It is a full-page advertisement, and it is not Bernard Ingham—it was the Government of the day. It says:
Your pay-rise will be limited to £6 a week in the next 12 months…If you earn £8,500 a year, or more, you will not get any increase at all…Action will be taken to limit price rises on some of your basic foods…If you own any shares your dividents will not be allowed to rise by more than 10% over last year.
That advertisement should become a political advertisement sponsored by Conservative Central Office. It should be reproduced in its entirety so that people can reach their own conclusions.
We are putting out advertisements on the "can do" principle. Britain can do it. These advertisements remind us of the days when the Government said, "You cannot do it. It is tough. Our country is under threat."

Mr. Home Robertson: The hon. Gentleman complains of leg-pulling by Opposition Members, but he is doing a little bit of his own. He is amplifying our argument. We quoted examples involving the poll tax and the Minister is quoting examples from some time ago. I have not seen all of the advertisements from which he is quoting, so I do not necessarily accept that they are examples of abuse. Does he accept that there is an overwhelming case for effective controls over the standard of advertising by Government Departments? This debate is supposed to be about controls over deceitful advertising in other sectors. Can the hon. Gentleman give us any undertaking that there are to be such controls over Government advertising?

Mr. Butcher: The controls are adequate, indeed very adequate. They have been enhanced today. I am afraid that I cannot agree with the hon. Gentleman. Perhaps he is in his confessional and implying that the Labour party may have been guilty of putting out the kind of advertising which he accuses us of putting out. The controls exist. The IBA has a clear stance. It has agreed that our advertisements are perfectly in keeping with non-party political objectives, I assume. I commend the regulations to the House.

Question put and agreed to.

Resolved,
That the draft Control of Misleading Advertisements Regulations 1988, which were laid before this House on 23rd March, be approved.

PETITION

John Ruskin High School, Coniston

Mr. Michael Jopling: You will recall, Mr. Deputy Speaker, that I intended to

present a petition to the House last Friday, but that, in view of the other business before the House and the multitude of other petitions which were to be presented, I explained that I would present it at some other early date. That day is today, although it is now 1.45 am.
The background to the petition is a strong feeling in my constituency about the proposal to close a school in Coniston in the Lake District. It is a correctly, carefully and beautifully drafted petition which is addressed thus:
To the Honourable the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled.
The Humble Petition of the Governing Body of John Ruskin High School situated at Coniston in the County of Cumbria and the Parish Councillors of Coniston, Broughton in Furness, Blawith, Claife, Hawkshead, Lowick, Torver, Satterthwaite, Skelwith, and Kirkby in Furness, in the said County of Cumbria, Sheweth;
That the inhabitants of High Furness whose children attend John Ruskin School are eminently satisfied with the efficiency, viability and educational standards of the School which is the only Secondary School in the High Furness Area. The School at the present time is occupied to 86 per cent of its capacity and is attractive to parents from well outside its formal catchment area.
Your petitioners feel strongly that any move to close John Ruskin High School would have severe detrimental effects on the social structure of our area and would furthermore remove any real possibility of parental choice in the field of secondary education.
Wherefore your petitioners pray that your honourable House will support the continuance of this exceptional and much loved school by opposing the proposal of Cumbria County Council to close the said John Ruskin High School.
And your petitioners, as in duty bound, will ever pray, etc.
The petition has my warmest support. I have previously brought this matter to the House and it concerns a battle which I believe must be won. I hope that the House will support my constituents in the sentiments expressed in their petition.

To lie upon the Table.

Clyde Submarine Base

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dorrell.]

Mr. John McFall: The subject of this debate is a matter which was brought to my attention by an article in the New Civil Engineer of 28 April 1988, referring to the foundation problems associated with the building of the shiplift and finger jetty in the Clyde submarine base at Faslane. In a moment I will detail the specific nature of the problems referred to in that article. However, I am concerned at the response given by the authorities to the media who attempted to follow up the matter, who were met by a wall of silence from the Property Services Agency—which, regretfully, seems to be the norm for departments with responsibility with anything to do with the Clyde submarine base, whether or not they have any security implications.
There is failure to recognise that my constituents have a legitimate interest in the affairs of the Clyde submarine base. The base itself occupies a considerable part of my constituency. In fact, the MOD owns 16 per cent. of the land within the entire constituency and as a consequence has annexed the most beautiful part of my constituency—the peninsula around Gareloch—with considerable detriment to tourist potential. The latest Garelochhead bypass development, which stretches for more than 10 miles, has scarred the landscape and I have received numerous complaints from residents of both Helensburgh and the peninsula on the environmental destruction that is taking place as the result of the work undertaken by the Ministry.
Within the next few years the Trident programme will mean further inconvenience to the community. An increasing burden will be placed on the infrastructure, with a tremendous increase in traffic moving in and out of the base. MOD figures indicate that more than 1,500 lorries a day will be using the roads of Dumbarton constituency—roads which are already crowded and in need of upgrading. That will undoubtedly result in considerable inconvenience to my constituents and has worrying implications for tourism. Many tourists will be put off from journeying through the area with the knowledge that they will have to negotiate difficult bends and contend with heavy construction traffic. The degree of attention required by drivers will turn what should be a leisurely trip into a stressful journey. Many will decide that it is better to look for other areas of recreation.
Therefore, my constituents have considerable interest in the area, but the MOD and other Government Departments seem content on keeping the community at arm's length. Witness the response to The Observer report about a possible melt-down on HMS Resolution in January this year. I do not propose to go into that argument again. However, it is worth pointing out that the answer given by the MOD was minimal and did nothing to alleviate the fears of the community. There is no doubt that a fuller answer could have been given without detriment to any security requirements. It seemed to be a knee-jerk reaction to media interest which betrayed a lack of any thought or recognition of the community's interest in the base. It may well be a characteristic of those involved in defence generally. Recently, when documents relating to the servicing of the United States submarines at

the Holy Loch base were washed up on Helensburgh beach, the United States authorities dismissed the documents as being of no interest. That comment was at variance with those expressed by defence experts and revealed the US Navy's answer to be both callous and insulting to the community.
The matter that I wish to bring to the Minister's attention is one which raises questions of safety, as it revolves around the construction of the shiplift and finger jetty designed to lift Trident submarines out of the water. The company responsible for the £120 million contract is Cementation Construction, and it has run into considerable difficulties with tubular steel piles drifting out of tolerence during driving. Hammers have also been breaking down, and an underreaming drill used to form pile sockets in the granite seabed has been lost. Cementation has to drive a total of 1,040 tubular steel piles for a 15,000-tonne capacity submarine shiplift and twin berth jetty. In addition, two concrete cellular jetties extending 285m out into Gareloch and supported on 825 piles of varying diameter are required to be driven. It is extremely worrying that about 150 piles are thought to have been driven so far, and dozens are going beyond the specified 75 mm lateral tolerance, some more than another 75mm out.
The reasons for the difficulties have been investigated by those concerned for over four months, yet no agreement has been reached. It is considered by the project consultant engineers, Babtie Shaw and Morton, that boulders in the soft clay which lie up to 80ft deep above the rock are responsible for knocking the piles off course as they are driven from offshore jack-up barges. However, this is contested by the contractor, Cementation. It has called in a foundation specialist which has decided that the boulders are incidental and that the main problem lies with the unexpected joints and fractures in the bedrock.
The obvious question is: was a terrain survey carried out before the decision to go ahead with the project was taken? I assume that this must have happened. So why was the fault not discovered at the time, over 12 months ago? Who is at fault for the present situation? If a pre-construction survey had been competently carried out in the initial stages, the implication would be that the difficulties were due to the operational procedures now being undertaken. We know that in fact there is a debate over driving procedures between BSM and Cementation which was resolved by way of a compromise. The immediate question is whether the piles that are out of line could feasibly have been driven according to specification, or whether the overburden and bedrock qualify as unforeseen ground conditions. To remedy the problem will be extremely expensive and difficult, as some piles will have to be extracted and replaced, while others will be treated in situ.
I would like to put a number of questions to the Minister. I realise that the complex nature of the matter means that it may not be possible for the Minister to respond fully this evening. If that is the case, I request him to respond in full by writing to me as soon as possible. Has a conclusion been reached on the nature of the problem? Is it the terrain, and, if so, can the problem be overcome, or will the project have to be abandoned? After all, in a report to Parliament last year by Sir Gordon Downie, the Comptroller and Auditor General, the building works programme at the Clyde submarine base was identified as a "high risk area". What is meant by that phrase? Was a


proper terrain survey carried out? If so, why was the fault not discovered? Who is responsible? How many piles will have to be replaced, and how many will be subjected to corrective measures whilst remaining in place?
The whole project was estimated to run for 162 weeks, until the summer of 1990. As more than four months have been spent in trying to identify the nature of the fault to no avail, presumably it will be impossible to predict accurately how much the Trident programme will be delayed by the setback. However, I should like to know how many weeks have been lost to date. The PSA refuses to comment. Why? This is not a matter of security, with grave implications. The PSA appears to feel that it has no responsibility towards the community, and does not need to communicate with them. There was an unofficial comment in the magazine New Civil Engineer from an unidentified individual at the base. This anonymous individual was quoted as saying that it was
anticipated that the overall contract would still be finished on time.
That does not correspond to what is known about the difficulties of identifying the nature of the fault and of rectifying it. It appears to be just another bland assurance that everything is all right and that the public need not bother to ask any questions. It corresponds with the press release in the Clyde public safety document which states that in the event of a release of radioactive material the media should state that "a small quantity" of radioactive material has been released, regardless of the real nature of the accident.
Because of those bland assurances and the unwillingness to communicate on issues that are not directly related to security, my constituents are losing confidence in any statements made by the Government Departments involved with the base. Yet the MOD, with the greatest number of public relations officers in any Whitehall Department, seems unconcerned. This matter should deeply concern the Minister.
The New Civil Engineer magazine refers to the cost of delay and the extra work, which, in its opinion, is currently a highly sensitive issue between Cementation and the Property Services Agency. It adds that, although details of the anticipated ground conditions are unclear, the PSA has confirmed that the Cementation contract has no condition for unforeseen ground. What is the additional cost of the remedial work and who will pay for it? Will it be Cementation or will it be the project consultants, Babtie Shaw & Morton? Will they be considered to have any liability? Will the taxpayer, through the Property Services Agency, finally have to foot the bill? The Ministry of Defence has always been very reassuring about the cost of Trident, yet those costs have escalated year by year. The public have the right to know the additional costs that will have to be borne if the PSA takes ultimate responsibility for this regrettable situation.
The nature of the problem must be discovered and made public. The cost of the remedial work must be estimated and, if the problem is due in any way to human error, whoever is responsible must be identified. Above all, safety must be the overriding consideration in any remedial work. That should be the case in all contracts covering work at nuclear submarine bases. Here, above all, there must be no temptation to cut corners.
I note that since this contract was issued in July last year a clause has been introduced that allows contractors to claim against the Government for additional costs that

result from unforeseen circumstances. I welcome the inclusion of such a clause because it gives some guarantee that safety will not be prejudiced by consideration of costs. I hope that the Minister will take it upon himself to ensure that the safety of my constituents, including service personnel, will be the overriding criterion, no matter who bears the financial responsibility for the matter.
I realise that there are many interests of common concern between us in relation to the Clyde submarine base and its economic and social influence in the constituency. In that respect, I freely and graciously acknowledge the Minister's assistance and courtesy to me in the past, and presently in regard to surplus MOD housing in Helensburgh. However, I hope that he will realise that he needs to be as open as he can with the community I represent when difficulties arise at the base. He should give real reasons, not the bland placebos of the public relations men which the MOD all too often provides.

The Parliamentary Under-Secretary of State for the Armed Forces (Mr. Roger Freeman): I congratulate the hon. Member for Dumbarton (Mr. McFall) on raising this important issue. I am grateful to him for giving me general notice of the points he proposed to raise.
The Government's decision to replace Polaris in the mid-1990s so as to maintain an effective nuclear deterrent well into the next century continues to enjoy overwhelming public support, as does the decision to use the Trident II D5 missile system with all the advantages of commonality that it will give us in operating a system which is in use with the Americans. Our programme is proceeding satisfactorily and on schedule. An essential part of it is the development of the Clyde submarine base and the construction of new facilities to support the Trident strategic weapon system and Vanguard class submarines at Faslane and Coulport.
The hon. Gentleman raised a number of detailed questions and I shall try to answer as many of them as I can. I will study the record and write to him if I am unable to cover all the ground tonight.
Works at the Clyde submarine base amount to almost £660 million of Trident development. That is all taking place within the hon. Gentleman's constituency. The origin of the hon. Gentleman's specific interest may lie, as he has suggested, in an article in the technical journal, theNew Civil Engineer, dated 28 April. That article, aimed at professional civil engineers, described in some considerable detail technical difficulties that need to be tackled and overcome in the course of the development. I shall come to these issues in a moment, but before commenting on them I remind the House of the nature of the development, and in particular the shiplift being built at Faslane.
The Clyde submarine base, which is already the base of the Polaris submarine force, was chosen as the main base for Trident because of its closeness to our primary NATO area of interest, because of its ready access to deep water operating and because it offers deep water berthing.
The Clyde and its approaches is the only site meeting all these requirements without the additional costs of providing additional facilities and new buildings elsewhere. The base, incorporating HMS Neptune at Faslane and the royal naval armament depot at Coulport, is a


major home for the United Kingdom fleet, and the facilities being provided will support not only Trident but hunter-killer submarines into the next century. The base will also continue to support Polaris until the system is replaced.
The most important elements of this development programme are the creation of new facilities at Coulport for processing warheads and arming the submarines, including the construction of a floating explosives handling jetty, the development in the northern area of Faslane that will include a shiplift, a new jetty, support buildings and power generation facilities, and external works such as the network of new roads between Coulport and Faslane.
As a construction programme, this represents the largest and most complex project ever undertaken for the Ministry of Defence. Indeed, it is one of the biggest construction projects in the United Kingdom. Much of what we are building has to meet very exacting standards and criteria on nuclear safety, which the hon. Gentleman raised specifically. I am sure the House will realise that this represents a formidable challenge for the Property Services Agency and its contractors and consultants. I pay tribute to PSA, which acts as our agents in managing the project.
Part of this overall redevelopment includes two facilities being constructed by Cementation Construction Ltd. as the main contractor in the northern development area of Faslane, a finger jetty which will provide berths for submarines, and a shiplift to allow submarines to be serviced at short notice in dry conditions.
The concept of a shiplift is not novel. They are in increasingly common use throughout the world as a practical alternative to the more traditional facilities of dry docks, or floating docks. A shiplift consists of a platform which can be raised by a large number of winches—about 100 in the Faslane case—and can be used to lift vessels clear of the water. Our shiplift will be located within a large building and will provide a protected environment from the weather in which to service the submarines.
However, at Faslane there is a feature which adds considerably to the complexity of the technical task. This shiplift will be used to lift nuclear-powered vessels, and since safety must always be of paramount importance in all matters concerning nuclear reactors the shiplift, like many other facilities at Faslane, has to be constructed to the very highest standards required in the nuclear industry. That means that the structures themselves must be designed to remain sound, even in circumstances when a more conventional building would have failed, and, to use them as facilities for nuclear work, it is necessary to demonstrate to a body of independent nuclear experts who are separately advised by the safety and reliability directorate of the United Kingdom Atomic Energy Authority that the buildings, and the equipment within them, will withstand an earthquake of a magnitude that might be expected to occur once in every 10,000 years in the United Kingdom. I am not aware that such an event has occurred in our recorded history. If such an earthquake did occur, most of the other buildings in the area would collapse, but the nuclear facilities would remain sound.
I emphasise this because of the great importance we attach to the safety of the design and because it lies at the

root of the matters addressed in the article referred to by the hon. Gentleman. The article describes problems experienced by the contractor in driving the piles needed to support the shiplift and the finger jetty, with the result that his programme is running later than he had hoped. These piles are steel tubes, typically 2 to 3 ft. in diameter, 160 ft. long and they must be driven into the bedrock with their tops located within a very small tolerance of between 3 and 6 in. I am sure the House will understand that such tolerances are not easy to achieve, but, because of the stringent safety standards we require for all our nuclear facilities, these standards must be maintained and any correction must be carefully controlled and monitored. About a third of the piles are now in place and work is progressing steadily. Where the contractor finds that a pile is out of tolerance, this is withdrawn and replaced. Less than 10 per cent. of the piles have been affected and, although the withdrawal and replacement naturally slow up the contractor's rate of piling, it does nothing to imply there is a basic engineering flaw.
The New Civil Engineer article goes on to speculate on the reasons for these difficulties and itself admits that the causes are many and various, ranging from the presence of boulders located in the clay on top of the bedrock to variable sea bed conditions. However, the House should understand that all these possibilities are not really relevant to the final outcome. The designers of the structure fully expected that rock conditions would be variable, and so the design takes account of that. Once the piles are correctly placed, the structure that they support will be safe, irrespective of the underlying ground conditions.
The article points not to a serious engineering flaw but to a slippage of the contractor's planned programme. The House will recognise that in any major construction project there are innumerable sources of slippage and the contractor and the PSA continually adjust their efforts and resources to minimise the effects of slippages on final completion of the project. I can assure the House that there is provision in the programme for the construction of the shiplift to take account of these slippages. We believe that the piling will be completed satisfactorily and that the complete facility will be provided within the time scale required for the Trident and other submarine programmes at Faslane.
Clearly, the requirement to meet stringent nuclear safety criteria has caused some cost increase in the shiplift contract. This is currently being assessed, although overall costs for this package, which includes other support buildings, as well as the syncrolift and finger jetty which I have already mentioned, remain within budget.
I am aware, too, of local concerns about nuclear safety in general, both in the current operation of the base and in the future. The hon. Gentleman has raised the incident involving HMS Resolution on 16 January. The press allegations about near-disaster were quite erroneous and alarmist. For the benefit of the House, let me repeat there was an electrical malfunction which was dealt with by standard operating procedures; at no time was there any danger to the submarine's reactor, its crew or the public. I assure the House that, as a result of the close attention paid to safety in the design and operation of nuclear submarines, together with the high standards of training of Royal Naval personnel, the possibility of any nuclear reactor accident is extremely remote. Indeed, we have


never had an accident to a Royal Naval submarine resulting in the release of radioactive material to the environment.
The construction programme elsewhere at Faslane is well under way. Advance works at Coulport are complete and work on the construction of the main facilities and jetty foreshore has commenced. The Property Services Agency has invited tenders for the floating explosives handling jetty. The network of new roads, including the Garelochhead bypass, the northern access road and the Glen Fruin road, have been completed bringing much needed relief to local communities and offering a substantial improvement to the general infrastructure in the area. I understand the hon. Gentleman's comments about the effect of all this development on tourism, both in the past and in the future, but I am sure that he agrees that the efforts of the Ministry of Defence, through the PSA, in improving the road infrastructure have brought great relief to Helensburgh and to through traffic in the area generally.
The hon. Gentleman will know that the Garelochhead bypass has been handed over as a public highway and the private northern access road which is open to the public will be a permanent benefit to the area. The opening of these roads was warmly welcomed by the communities. We have also made improvements to the public water supply to communities on the Rosneath peninsula.
Clearly the development of the Clyde submarine base represents a major investment in the region, and many opportunities have been provided for Scottish-based manufacturing and service companies which won some 80 per cent. of the advanced works business up to the end of 1987 valued at £135 million. Indeed, the two most recent contracts totalling £22 million went to the Scottish firms of A. Monk of Sterling and Norwest Holst of Lanarkshire.
My hon. Friend the Parliamentary Under-Secretary of State for the Environment was able to tell the hon. Member in January that about 1,650 employees of contractors and consultants engaged full time on the

development had addresses in Strathclyde region. The comparable figure for Dumbarton district is about 800. Further major contracts let recently are expected to create about 700 job opportunities at peak. As I have indicated to the House, more contracts will be let later this year, including one for the floating jetty at Coulport.
The hon. Member will know, too, that we have paid particular attention to the impact on the environment and to the views of local communities, which we have welcomed at various community briefing meetings. I can assure the House that we are proceeding in an orderly and responsible fashion, taking account wherever possible of the legitimate concerns of local people, local and regional authorities and consultative bodies, including the Royal Fine Art Commission for Scotland and the Countryside Commission for Scotland.
The steps that we have taken to minimise the impact of the development range from major landscaping, conservation work and tree planting to noise insulation and strict contractor compliance with various conditions, such as construction traffic routes and working noise. I have no doubt that the local communities accept the need for what we are doing and recognise the lasting benefits that it will bring and the substantial efforts that we are making to alleviate the temporary burden which such a vast construction project places upon them.
As my right hon. Friend the Secretary of State for Defence has reported already to the House, the programme for replacing Polaris with Trident is proceeding satisfactorily and on schedule. The House should be in no doubt that it remains the Government's clear conviction that the Trident programme continues to represent outstanding value for money and that no enhancement of conventional capacity could possibly be of equal deterrent value.

Question put and agreed to.

Adjourned accordingly at eleven minutes past Two o'clock.